Best Tech Cities for Real Estate Investing: An Analysis of 6 Cities

by | BiggerPockets.com

Tech. Tech. Tech. It’s all the rage since Amazon started shopping for their second location. And since Denver remains a potential Amazon city, I thought it would be interesting to analyze popular, emerging tech cities for their investing attractiveness. (And again, a big shout out to my friend and fellow investor, Jennifer Ward, on this for helping me pull the numbers and sources.)

We looked at six cities that are not at the top of the tech game yet, but are mentioned frequently in articles and conversations about tech and San Fran flight. Those six cities are Denver, Salt Lake City, Seattle, Phoenix, Austin, and Portland. And we looked at 10 factors (all with equal weight): rent-to-value, rent-to-income, taxes-to-value, insurance-to-value, annual appreciation, unemployment, crime, population growth, tech job growth, and an educated population.

We’ll analyze each city individually, but when looking at the table below, know this: 1) green is good, 2) the averages are listed at the bottom, and 3) if you’re interested in any city on here that we don’t service (i.e. not Denver), reach out and we’ll get you connected to an agent in that city who is investor friendly.

6 U.S. Cities Analyzed for Tech Job Growth & Investing Potential

We looked at 10 factors for this study: rent-to-value, rent-to-income, taxes-to-value, insurance-to-value, annual appreciation, unemployment, crime, population growth, tech job growth, and an educated population.

Denver

I help people buy and sell real estate in Denver, so this seemed like the obvious place to start. Denver was good on five of the 10 metrics, with strong marks for rent-to-value, taxes, unemployment, crime, and the population’s education. Denver returned outside of the average (in a bad way) on rent-to-income, insurance-to-value, annual appreciation, population growth, and tech growth. The negatives are a little misleading, as the average reflects performance against the other cities in this analysis, not cities nationwide. Based on the data I could pull, Seattle has the strongest tech growth by far (6.7), and the only two other cities I could locate this data point for (Denver and Austin) were at 0.7. None of the other cities even registered, so in a way, Denver comes in strong on 6 of the 10 metrics.

The two factors I care most about here are: 1) Denver’s educated population (all employers like this) and 2) Denver’s rating as a tech city. All and all, Denver appears to be a strong tech market with good indicators on investing.

Salt Lake City

Salt Lake City is strong on six of the 10 tech investment metrics, showcasing well in the following categories: rent-to-income, taxes, insurance value, unemployment, population growth, and an educated population. (I also strongly like Salt Lake City for real estate because like Colorado Springs, the politics are softening and it’s physically beautiful.) Of the cities we evaluated, Salt Lake City has the highest population growth. What I don’t like about Salt Lake City is the crime (apparently, there’s tons of non-violent property damage there) and the fact that it doesn’t have enough tech companies to register. Those are both negatives, but I still love Salt Lake City for its real estate potential.

Seattle

I didn’t realize how superior Seattle was to Denver tech-wise until I compiled this list (and visited it last week). It’s strong on seven of the 10 factors—and much better on two of the factors that I liked about Denver: education and tech scene. Denver ranks 14th for the educated workforce, while Seattle comes in at nine. Denver has a 0.7 tech company rating; Seattle has a 6.7 rating. It also has incredible population growth (second only to Salt Lake City) and strong appreciation. Overall, Seattle has a lot going for it—but it is extremely expensive, so investors beware.

Related: Are Cities with Growing Income Inequality Better for Investing?

Phoenix

Let’s forget that it got so hot there in June that paint literally melted off road signs and simply focus on the fact that Phoenix only hit three of the seven markers, including crime—and I find that hard to believe. I’ve seen Phoenix’s nightly news, and its crime rate appears to be worse than Salt Lake’s. Other than that, Phoenix came in strong for rent-to-value and taxes. Phoenix definitely does not have enough going for it as an investment, much less a tech investment.

Austin

Denver and Austin are similar in their investing and tech potential. Both are strong in rent-to-value, unemployment, crime, population growth, tech job growth, and a populated education. And all metrics are not created equal, so we really care about unemployment, crime, population growth and tech growth—all of which are strong for both Denver and Austin. In terms of appreciation, Austin has a slight lead at 4.9% compared to Denver’s 4.16%.

Portland

I was expecting more out of our Northwestern cousin, but Portland is only truly strong for appreciation and education—and for education, it comes in at 38th, which is better than some of the other cities, but not incredibly strong.

Summary

Where is tech going? And if I’m basing an investment off of the strength of tech markets, where should I go? If you are basing an investment off of tech indicators, Seattle is strongest, closely followed by Austin and Denver. Austin and Denver have the advantage of being cheaper than Seattle, if not entirely low-priced themselves.

Again, if you are considering any of these markets, drop me a line and we can further discuss.

Good luck with your investing!

About Author

Erin Spradlin

Erin Spradlin co-owns James Carlson Real Estate. She loves working with first-time homebuyers for their enthusiasm and excitement, and loves working with investors because she’s a fellow spreadsheet nerd. She and her husband own three properties in metro Denver and are currently in the process of acquiring a duplex in Colorado Springs. You can find Erin’s blogs here: https://www.biggerpockets.com/renewsblog/author/erinspradlin/ and her airbnb video series here: https://www.youtube.com/playlist?list=PLgSUZKLPRI9tK3Vd-qpH3Sk2Rh-_pIrNN.

15 Comments

  1. Michael P. Lindekugel

    While rents in seattle are historically high they generally are not high enough to cover the mortgage and other OpEx of single family home rentals leading to negative cash flow before tax of CFBT. To achieve positive cash flow requires a down payment over 40% in many circumstances.

    For multifamily capitalization rates are a very poor indicator of ROI performance as capitalization rate is an index only relevant to the other the other data points in the study to assess performance against comparable properties and not a discounted cash flow technique to calculate interest or ROI. The capitalization rates in Seattle are in the low 4%s. to meet the banks debt service coverage ratio a down payment of 40% – 60% is required. With most older developments the value is in the land which means there is very little depreciation leading to high taxable income and very little cash flow (if any) shielded from taxation. All of that leads to IRR under 10%. Generally, I don’t let me clients acquire investment property with a Seattle address unless there is a very clear and compelling business plan and understanding. The new developments are selling for $300k to $500k a door and barely breaking even. Hedge funds and institutional investors like them even when the capitalization rates are in the 4%s.

    There are many other great cities in WA State tied to tech that have investment opportunities for investment IRR +15% and in many cases +20%. Finding those opportunities in which the intrinsic value is higher than public perception is key.

  2. Debarsie Dey Rohan

    Hi,
    Thank you for this post and the analysis. I have 2 questions- why is a more educated market worse for a real estate investor? Also, what is the statistic that the crime measure is measuring(eg: crime / million, convictions, etc)? Thanks!!

    • Erin Spradlin

      Haha. More education is always better. In my opinion at least. It’s just that for these results, the way that study was built, lower meant it was higher in ranking, so if something was ranked 15th, it had the 15th most educated workforce in the US, whereas if something was ranked 40th, it had the 40th most educated workforce. Make sense?

  3. Michael Baum

    There are some things not covered regarding Seattle and Portland somewhat. Their city councils are very much against the landlord in these cities. The Seattle city council is steadily moving past Socialism so you can expect more difficult times for property owners.

    For example, the Showbox club owner have proposed tearing it down to built a 40 story highrise. The music community has banded together to protest and that brought the city council into it.

    Now city council member, Kshama Sawant wants to apply Pike Place Market’s historical district designation to the Showbox. That would effectively make the property, currently estimated at 100m in value, zero.

    The city did a review of the Showbox building about 5 years ago and found that over 85 percent of the structure had been altered and/or removed so it didn’t qualify for any kind of historical zoning. Actually only the front facade was still intact.

    So, fair warning to anyone looking to buy there. If the city is successful in taking that property from the owners, it doesn’t bode well for anyone.

    • Erin Spradlin

      These details are a little specific for what this article would cover, but definitely a good explanation of what’s happening and a reminder that you need a local professional who knows what is happening in the area. Thanks for the context.

  4. John Barnette

    Yes Seattle is a little SF/Silicon Valley. And politics are very similar as well. For better or worse overall…and worse for sure as a landlord. But they are also destination cities with limited and expensive housing growth opportunities. Thus high prices. Portland has become a destination city for many Left Coast folks who desire the climate, culture, attitude, etc, but less cost and less traffic. Though not what I would call a heavy tech economy.
    I would be interested in a similar analysis of the Research Triangle area of North Carolina. Dallas supposedly has a pretty big tech employment base. And Boston would be in that group as well. I know very little about these areas. Any folks want to chime in ?

    • Erin Spradlin

      Definitely noticed that Dallas and Boston were coming up a lot. Boston seemed less interesting to me because it is already very expensive and crowded, but I am interested in seeing how Dallas performs as a tech city given that the prices are still pretty cheap.

  5. John Murray

    Erin you are a smart lady. You are correct about Portland Oregon. The train left for REOs and Shorts about 2 years ago. I purchase my last REO a little over a year ago. There are very little deals to found and I’m beginning to sell off my inventory of $3.6M. I was in the right place at right time, the time has come to cash in and seek other markets. Good call lady!

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