My Favorite Rental Markets

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I’m just getting started with out-of-state investing, but I thought now would be a good time to put together a list of some of my favorite investment markets. Right now, I’m working on closing Rental Property #3 in Chicago, but it’s never too soon to start planning for #4! And then… #5, #6, #7, etc…

When investing in rental property, it is of paramount importance to invest where the jobs are. When the next recession/depression hits, it’s inevitable that real estate prices will plummet again. Foreclosures and short-sales will become widespread. If you’re like me and plan to hold many properties, through many years, you have to make sure to invest in areas that are resilient and can withstand economic downturns. Like a good dividend stock, the rental checks have to keep pouring in, through good times and bad.

Here are the markets I’m most interested in investing in:

Favorite Markets:

Indianapolis, Indiana – Very affordable housing prices. Stable market and landlord friendly state. 10% Cap Rates, typical.

Chicago, Illinois – #1 most diversified economy in U.S. 3rd largest Metropolitan Area. Home to 31 Fortune 500 companies. Strong rental market (55% vs. 36% U.S. average)

Austin, Texas – 20,000 new jobs expected to be created in 2013. Large technology presence. Home prices have appreciated considerably over the last year, but housing, in general, is still affordable.

Dallas, Texas – Population of over 4,000,000 in the Dallas Forth Worth (DFW) area. Home to 18 Fortune 500 companies! Second largest international airport in U.S.

Houston, Texas – 3.8% annualized job growth in March 2013, largest in the nation. Leading the nation in job recovery (post-downturn). Have added 2 jobs for every 1 lost.

Houston

The following areas don’t make sense right now. This doesn’t mean they won’t ever make sense, but it’s very hard to find cash flow deals here:

Areas to Avoid: (Until Recession/Depression)

Bay Area, California – Rents don’t scale with purchase price. Prices are too high relative to rents. Majority of inventory does not cash flow using conventional 20% to 25% downpayment. Next big bubble has just begun…

Los Angeles, California – Both L.A. and Orange County are not far behind the Bay Area. Prices simply don’t make sense here.

Seattle, Washington – Tons of jobs here. Lots of high tech. Unfortunately, prices don’t work here either.

Phoenix, Arizona – Too many hedge funds playing in this market. Prices have appreciated 20% in the last year. Market is tapped out.

Las Vegas, Nevada – Same as above.

Atlanta, Georgia – Also tapped out. Appraisals are difficult here. Many come in too low making it difficult to finance.

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Two Spendy weekends and a Flat Valuation » theFIREstarterPKPaulineFI FighterMartin Recent comment authors
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Martin
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FI Fighter, you said that, the check must continue pouring in in thick or thin times. My point of view is a bit skewed by the location I live in and during the crisis even rentals were down here and a lot of properties empty. people simple moved into cheaper locations.

I see you running up to the stars fast and quickly and I am happy for you (and a little bit jealous). But also do not overdo it. It may hurt…
Good luck.

Pauline
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Interesting info, I was looking at ways to invest as a foreigner in US property, apparently it can be done, and pretty interesting at the moment with all the foreclosures. I was looking at the Midwest and TX as well, and Florida, looks like it is picking up again.

PK
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I’ll have some hard data on the Bay Area for you to dig over in the near future (although it looks like you’ve already smelled bubble). I did this exercise back in 2011 and concluded ‘no bubble’ (and bought). Things are shaping up differently this time…

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[…] of buying a rental property not in my local area but having read a load of FI Fighters posts on out of state investing I am getting used to the idea. I used to live in a rental property where the owners lived in Dubai […]

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