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Post Series: Real Estate Investing
A perfect neighbourhood. Houses in suburb at Spring in the north America.

You’ve heard that real estate is a great investment today, and it does make sense: You find an affordable home. You can buy it, renovate it and sell it for a higher price than what you paid. Or, you could rent out the home as you wait for its value to increase. The monthly rental payments can help you cover your investment property’s mortgage.

It’s one thing to know that residential real estate can be a smart investment; it’s another to know which homes will give you the greatest chance of making a solid profit when it’s time to sell.

As with all investments, there are no guarantees when you’re spending your money on a two-flat, a suburban bungalow or a downtown condo, but you can increase your odds of a successful real estate investment by targeting the right cities. There are certain cities across the United States that offer more opportunities for real estate investors.

What makes a city a good one for residential real estate investors? Stephen Nostrand, chief executive officer and chief operating officer of NAI Miami, said that good investment cities share certain traits. They all are enjoying solid job growth. They are attracting entrepreneurs who are starting small businesses, often in the tech sector. And their factories, warehouses and distribution centers are all bustling.

You also want to consider the state laws regarding both tenants and landlords. States have their advantages and disadvantages.

“Those are things that investors should look for in any city in which they are looking to place capital,” Nostrand said. “These are the factors that make for strong real estate investment opportunities.”

Brian Davis, co-founder of rental-automation company Spark Rental, said that investors, no matter in what city they are placing their dollars, should target stable neighborhoods that are already desirable places to live. This means that the cheapest residential properties aren’t always the best ones in which to invest, Davis said.

“In the real world, bad neighborhoods have high crime rates, high turnover rates, low occupancy rates, antagonistic tenants and low odds of appreciation,” Davis said.

Davis recommended that investors look for middle-class neighborhoods in cities with positive population growth. He also recommended that investors seek out neighborhoods that don’t depend on the success of one industry.

So, what cities meet these criteria? Here are some, recommended by real estate investors.

Austin, Texas

Aerial view of Capitol building in Austin the Capital of Texas.

Brad Pauly, with Austin-based Pauly Presley Realty, doesn’t hesitate to list Austin as his top pick for investment real estate, as he believes it’s poised for long-term sustainability and growth, which can only boost the strength of its real estate market.

“We have the state capitol, the University of Texas and huge businesses that call Austin home,” Pauly said.

Pauly said that it’s possible for investors to find affordable homes in the Austin market. Yes, residences in downtown Austin can be expensive, but Pauly said that it’s easy to find four-bedroom homes in the $200,000 range within a 30-minute commute of Austin’s central business district.

Then there is the growing population: These new residents need homes, which means that demand for residential real estate continues to rise.

“There are over 100 new residents in Austin a day,” Pauly said. “Properties don’t sit on the market very long in Austin, so finding and leasing to a quality tenant is a breeze.”

Charlotte, North Carolina

Charlotte, North Carolina, USA uptown skyline panorama.

Yulia Kozhevnikova, real estate expert with Moscow-based international real estate broker Tranio, said that you can find solid investment properties throughout the Charlotte market.

Charlotte is one of several U.S. real estate markets that has yet to generate the headlines of places such as New York City and San Francisco. Because Charlotte doesn’t receive this level of attention, it’s easier for investors to find homes that are still affordable and that present good opportunities for price growth.

Kozhevnikova calls markets like this “second-hand markets” and recommends them to investors looking for bargain real estate that they can eventually flip for higher profits.

“In the United States, second-hand markets are relatively small,” Kozhevnikova said. “Many investors are drawn to them amid efforts to find higher yields than are available in other markets that are approaching a stage of saturation.”

Miami, Florida

Looking down South beach on a beautiful day

Nostrand from NAI Miami pointed to his home city as one that provides plenty of profit potential for real estate investors. One of the reasons? Job growth. Miami is experiencing steady job growth today, with thousands of jobs being added to the market.

At the same time, Miami is a global port city. The market attracts residents from across the globe and has become a hub for small businesses. This continues to drive up the value of residential real estate here, Nostrand said.

“Being a global port differentiates us from a lot of major cities in the United States,” Nostrand said. “We have invested here to allow the Panama ships to come in. Now we are seeing a growth in global shipments of products from around the world. We also have a huge airport operation here. Miami is a hub, not just connected south to Latin America but east to Europe. Those connections have made this a global mecca.”

Phoenix, Arizona

Five Best Cities for Investment Real Estate - Quicken Loans Zing Blog

Jason Mitchell, owner of Scottsdale, Arizona-based real estate investment firm Desert Bridge Capital, said that Phoenix should be a top destination for real estate investors because the metropolitan area is still experiencing population growth.

At the same time, the older urban neighborhoods of the city are in the middle of a revival, with renters-by-choice flocking to Phoenix’s urban core, Mitchell said.

“Select a neighborhood that is close to places where people work and play,” Mitchell said. “Look for an area with plenty of stuff to do nearby, like restaurants, shops, outdoor trails and gyms to help the chance of your investment increasing in value as the area evolves.”

Nashville, Tennessee

Nashville Skyline

Steve Hovland, director of research for HomeUnion, said that two key factors impact the value of an investment property. First, what average annual rent growth can an area expect during the next four years? Second, what kind of cash flow can an investor expect when holding onto a property while waiting for it to increase in value?

Cash flow is created when investors have an easy time renting their investment properties for high monthly rates. Hovland said that Nashville benefits from both factors: The metropolitan area is expected to see steady rent growth during the next four years, while rental housing is in demand.

“Investors should look for investments in markets with strong job growth that have a balance between healthy monthly income and climbing values,” Hovland said. “This should amplify returns and protect investors from downside risk. Within these markets, investors should look for areas where the barriers to construction are significant.”

Investing in real estate, especially in the above cities, can be very profitable. While there can be great reward, there are some potential investment pitfalls you’ll want to be aware of.

Have you invested in real estate? Share your experience with us in the comment section.

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This Post Has 4 Comments

  1. Punta Gorda Fl condo market has been highly profitable investment for me. I’ve doubled my money in a few years. Always receive multiple calls from northerners to rent every years. I’ve also receiv

    1. Glad to hear it’s worked out for you, Karen! Good luck with your future endeavors as a real estate mogul. Have a great day!

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