How To Choose The Right City To Invest In Real Estate

randy slavin cityscapes

Photo: Courtesy of Randy Scott Slavin

When I told my parents that I planned to accompany my boyfriend of three months to Taipei, Taiwan, my father’s first reaction was: “We don’t know this boy yet. He’s probably going to try to sell you into the slave trade in Asia. Why are you going to Taiwan?“The questions went on and on. At the time, I thought that moving to Taipei was the right thing to do.

I made my decision to move to Taipei on intuition alone. I wanted to go and that was that.

Looking at real estate investing, intuition is important but doing research can improve your chances of success. If you plan to invest anywhere, including in your hometown, I urge you to gather data before making a purchase. Come up with criteria and stick to your plan. Make decisions using both intuition and facts.

Below are a few hints for how to choose the right investment city
1. Think Big – Choose a city with some people in it. If you live in a small town, think hard before you invest there. Check out the big city an hour or so away. I prefer cities with a population of at least 100,000 with larger market areas surrounding the city. I know investors who don’t mess with cities with populations less than 500,000.

2. More Growth Means More Money – People moving to an area are potential buyers for your flips or renters for your buy and holds. Growth translates to shortages of rental inventory and rising rents. For buy and holds, rising rent is a godsend. I invest in 7 cities: 4 with rising rents, 2 with stable rents and 1 with decreasing rents (oops!). Can you guess where I’m buying? In growing cities where you may even get appreciation.

3. Jobs – A Nice 4 Letter Word – Job growth is the biggest factor in choosing an investment city. If you can invest anywhere, why not chose a place where employers are hiring. I decided to buy a property in a city with negative job growth because the house was so cheap. The problem is that I keep lowering my rent to fill my space. On the other hand, I have 2 cities where I raise the rents every time I have a turn.

4. Rockin’ Ratios – I have tons of family in Florida and would love to find a great “buy and hold” investment city there. Unfortunately, the Sunshine State has a lot of cities like Coral Gables:

  • Coral Gables median home price: $443,200
  • Coral Gables median household income: $48,525
  • Coral Gables ratio of home price to income: 9.13 So houses in Coral Gables cost over 9 times what people make. Looking only at this data, I’m going to assume that the housing prices will be too expensive here. I’ll also figure that the rents won’t be high enough to cover my costs because the tenants won’t be able to afford higher rents. Compare the ratios with Atlanta:
  • Atlanta median home price: 114,100
  • Atlanta median household income: 43,560
  • Atlanta ratio of home price to income: 2.6 At first glance, it appears I can buy an inexpensive house in Atlanta and the tenants can afford to pay the rents. I’m not advocating buying in Atlanta because I haven’t looked at all the other factors but using this data I can rule out Coral Gables and put Atlanta on a “research further” list. 5. Tenant Tendencies – Some cities just have more renters. If you want to buy and hold, why pick a city that doesn’t have a large number of renters. If you want to flip, you might opt for a “we want our own home” town. 6. Don’t Buy in Places That Have High Property Tax – No need to elaborate here. 7. The Big Wigs – Is the local and state government strong or are the leaders lacking vision and leadership? How about the courts? Find out how much liability you will have as a landlord. Are the state and city courts favourable to landlords? 8. Getting There – Is the investment city an easy drive? If not, make sure the airports are good with lots of low cost flights. 9. The Crime Scene – Multiple appearances on the T.V show Cops is probably not your best investment city. 10. The Fun Stuff – Since you will be travelling to your investment city, make the area a fun one. Why not choose a place where you have family or friends? Opt for cities that are a good place to go for vacation.

When deciding where to invest, back up your intuition with facts. Make a list of all the things you want in an investment city then start looking for the right place. Don’t just up and start investing in a place without doing your research. Do your homework before investing in your hometown too. When I went to Taiwan on a whim, I didn’t do my research. I lucked out though. My boyfriend of three months became my husband of 19 years.

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