With incomes soaring in urban hot spots like San Fransisco, Seattle and Los Angeles, housing prices appreciated significantly as well. However, large year over year real estate returns in these markets increases the risk of an eventual crash, leading investors to search for new real estate markets for growth and/or stability.
Financial advisers are increasingly recommending cashing out of these markets now, rather than wait until the market has peaked. Although the stock market has performed well in recent years and the unemployment rate is very low, most job growth has taken place in the lower ends of the income distribution. This means that there should be a steady demand for apartments and cheap housing, while expensive housing markets may start to decline. So, where should investors be looking to for their next opportunities? Here is a list of the most promising real estate markets in 2019:
This city is seeing the largest job growth on the list, at 4.7%. This figure has increased from 3.8% only 6 months ago. With home prices increasing slower than incomes (10% vs. 20%), this market looks due for a solid upward swing. With home prices rising fast, however, investors would be wise to move quickly.
Another Florida town, Jacksonville is seeing 3% job growth and also has relatively affordable housing at its current market levels. The average home price is $270,000, well below average for the best potential markets.
San Diego, CA
This Southern California city is attractive for many reasons. San Diego boasts perhaps the best weather conditions year round of any American city. It also has the biggest difference between home price increase and income increase (7% vs. 21%) on the list. This suggests that although prices are relatively higher ($514,000 average), there is still a lot of room for the market to grow.
Silver Spring, MD
This Maryland town is a great opportunity for investment in apartments. With its close proximity to Washington, D.C, there is a steady demand for housing in the area. Housing prices are quite high in the area, so people will be looking to rent here. The average rent in Silver Springs is lower than that of nearby Washington, D.C’s ($1,398 vs. $1,646), which suggests there is room for growth here as well.
Airbnb is undoubtedly leading the way for the vacation rental ownership market
. Airbnb is a worldwide sensation with properties located in 190 countries. As of November of this year (2018), 640,000 people
have invested in and are hosts of an Airbnb property. As others see the popularity of the site and its competitors, many wonder if they should jump on board and invest in their own vacation rental property.
Investing in an Airbnb Property
Many people that would’ve otherwise never thought to rent out their home or apartment are looking into buying a piece of property just to get in on the popularity of Airbnb. Thinking of doing the same? Before you invest there are a few considerations you will want to take in account:
1. Research the Local Rules and Ordinances
Before purchasing a property for short-term rental, research the rules and ordinances in the area. Some cities enforce certain rules that limit short-term rentals in favor of long-term rentals. Depending on where one lives, they may find that investing in an Airbnb property breaks the law.
Moreover, some local rules force renters to pay additional taxes and fees on the income generated with their Airbnb. Similarly, these renters may also be forced to obtain certain licenses to be able to rent out their property.
2. Ensure that the Property Can Also Be Used for Long-Term Renting
Buying a property specifically for Airbnb? Be sure that the property is also available for long-term renting. As business is always ebbing and flowing, it isn’t feasible to solely rely on revenue from short-term rentals.
3. Keep Tax Rules in Mind
Renters that set their Airbnb property lower than the market value may find that they are disqualified from using the property as a tax write-off. Before setting the rates or the property, research the IRS tax code and ensure that the property is in accordance with federal guidelines.
4. Review All the Expenses of Your Short Term Rental
While renting a room in one’s apartment on Airbnb requires little additional effort, renting an entire property tack on extra responsibility for the renter. In addition to maintaining the property by repairing and cleaning it, the owner must pay for the water gas, cable, electric, and Internet. All of these should be reflected in the price of the rental.
Don’t invest in an Airbnb if all the aforementioned considerations haven’t been made. Failing to consider these four things can turn a potentially profitable investment into a loss.
There’s a level of risk inherent to any investment, but successful investors can tell you that making money in this manner should never be a game of chance. Research constitutes a significant portion of any investor’s job, and that’s especially applicable when dealing with real estate. Any number of factors could affect the value of your property, but these tips can help you get some sensible grounding in the industry.
Learn the Lay of the Land
The value of a property is about a lot more than the size and quality of the home. The neighborhood and city it occupies is just as important, and getting a feel from the street level can help you not just predict what the property is worth now but what it might be worth in the future. If possible, you’ll want to make sure to visit the house itself so you can get an understanding of the local traffic situation, aesthetics, and access to entertainment and public facilities. Driving around can give you a big picture understanding, but going out on foot is just as important. Speak with local business owners and residents to get an understanding of the attitudes and get to know about upcoming development projects. This can be a good barometer for how well you can expect your property’s value to grow.
Assess the Market
There are a number of online resources that can help you determine if the property you’re looking at is a smart investment or a money trap. Check with a local Realtor or with online rental directories to get an understanding of typical rent in the area, and then evaluate that against your budget and the cost of your investment. Zillow can be a great resource here. You can also dig up the mortgage and lien history on your property directly. This information is public record and can be uncovered online without too much effort.
Scope Out Total Expenses
Figuring out the cost of your investment is about more than just comparing the cost of your mortgage to the average rent. You also have to take utilities, maintenance, and insurance into consideration. This will help you more accurately determine what your overall costs can be. And while some owners may be reticent to give up this information, the promise of a reliable buyer can often encourage them to be transparent with that data.
After putting these tips to use and conducting thorough research, you are ready to make your investment!
As humans, we like things orderly, and it’s in our nature to look at all the important things and rank them. But life is generally more complicated than that, and “the best” is often subjective and subject to any number of different factors. That’s as true for the world of real estate as anywhere else. In short, the best place for investing in real estate is determined by your own situation, your unique ambitions, and your interests. In short, everyone’s best country for real estate investment is different.
That means that you should be asking yourself some important questions when it comes to deciding where you’d like to invest your money. You’ll want to begin with the practical considerations of what resources you have available to you. Finances are a big factor here. The Georgian market, for instance, won’t pay sizable returns on investments that aren’t in the six figures, but less developed countries could see a better return with a smaller investment. Just keep in mind that these regional markets are always shifting, so staying abreast of shifts in the market and assessing your finances is of critical importance.
It’s also important to consider that while less developed countries than the U.S. can result in more generous profits, the onus will be on you to do more of the heavy lifting. That means that you need to consider your education level within the industry and how much time and effort you’re willing to devote towards your investments. These will serve as a major determinant factor in your ideal country for investment. Frontier markets can make you a lot with relatively little cash upfront, but you’ll be working that much harder to get yourself set up.
And while frontier markets may be great in the long term, you’ll want to consider whether yield of appreciation is more important to you. Investors with more money to spare and less need for cash upfront will find the best results in economies like Georgia that are likely to see substantive increases in property value over the course of years or decades. Those just looking for some quick monthly income could look as close as Rust Belt states in The U.S. where they can easily earn between 20 and 40% yield.
It would be insincere to make a list of the best investment markets, both because these change regularly and because they’re highly circumstantial. What works for you is going to be decided by your situation, and that means undertaking a level of personal research to track down the market that meets your needs.
Investing in real estate can be a lucrative experience, but it doesn’t come without its share of risks. Before you invest your savings in any real estate venture, it’s important to do enough research to help you feel confident that the risk is small compared to the potential gains. Even then, employing certain tactics, such as those listed here, can help you determine if you’re taking a good risk.
Follow the 1% Rule
The 1% rule states that you should be able to rent the property out for 1% of the purchase price. Following this rule means that you can expect to generate a positive cash flow, which will make the investment profitable and worthwhile. If you can’t reasonably expect tenants to pay rent equivalent to 1% of the property’s value, you’re better off looking for a more promising investment.
Ignore the Media Hype
There are a number of television shows that push the idea that you’ll make a fortune off every investment. Instead of buying into that, concentrate on turning a profit
. Even a small profit is better than nothing. The best way to do this is to buy the worst property in a good neighborhood and fix it up as cheaply as possible. Go for the less expensive countertops and appliances. After all, these items are easily replaced.
Calculate the Cap Rate
This is an equation investors use to determine the profitability of any investment. It compares the purchase price to the potential income. The cap rate helps you determine if you will be able to earn back your investment within one year of owning the property. If not, this would be considered a bad or high-risk investment.
Look at the Listing
If there’s a noticeable lack of photos and information in the listing, you can expect to do more work on the property. That doesn’t necessarily mean it’s a bad risk, if you’re willing to do the work. In many cases, these types of properties are priced to sell and the seller just wants to get rid of it. This is an opportunity to save money on the purchase price and maximize your investment, although the location of the property should still be considered.
There are many more strategies for identifying the risk of investment properties. As you become more experienced, you’ll develop your own ability to identify good and bad risks. Even when you estimate something to be a good risk, you may still misjudge the opportunity. Mistakes will happen, but perseverance will help you turn those bad investments into profitable learning experiences.