Investing in real estate is about long-term return on investment. It is about putting aside temporary fads and biases and focusing on long-term trends and numbers. If the 2008 financial crisis taught smart would-be investors one thing, it is to avoid bubbles. Property investors must make wise choices based on an asset class’s resilience to potential financial calamities and other black swan events.
With real estate prices rising in 2019 across the United States, it is important to pinpoint the factors that determine whether a city has staying power in the market. What are the cities that will provide an investor with the best returns while safeguarding their wealth in a possible economic downturn? Supply and demand dictate that a low available inventory of properties for a city that is also experiencing population and business growth is the ideal combination. Based on these criteria, here are the 10 best cities for investing in real estate in the United States.
1.Dallas/Fort Worth, TX
The Dallas/Fort Worth real estate market is regarded as currently being the top in the country, and with good cause. The low cost of living has brought on robust economic growth due to an influx of businesses migrating to the area, followed by the many professionals that support this surge. A further result of the low cost of doing business is the labor market experiencing an increase of over 4 percent, leading the nation in the first quarter of 2019. This uptrend in business activity translates to a higher demand for rental properties in the Dallas/Fort Worth area.
Unlike cities such as New York or Los Angeles whose economies are fueled to a great degree by banking, finance, and tech, the Dallas/Fort Worth economic growth spurt is more diversified. Small and medium enterprises are booming and construction is at multi-year highs. This is important when trying to safeguard real estate investments in the face of future economic downturns such as the one experienced during the Great Recession. A city like Dallas is better hedged against a 2008-like crisis due to its diversified business environment.
The fact that properties remain on the real estate market for an average of 48 days, a figure far smaller than the rest of the nation, is indicative of the health of the Dallas/Fort Worth real estate market. With other parts of the country showing a number of 70 days or more, the Dallas market is very liquid. This low turnover rate is a practical and tangible representation of growth. The less a property remains on the market, on average, the greater the demand and the healthier the market.
2.Austin, Texas
Remaining in the State of Texas, Austin, with an Income Tax Rate of 0.0 percent, as opposed to the nationwide average of 4.6 percent, is also experiencing high levels of economic growth. With an unemployment rate less than the U.S. average and recent job growth at almost two and a half times more than that of the entire nation, much of what applies to the Dallas/Fort Worth area holds true here.
An increasing college student population fueled by the above average education rates, coupled by young professionals electing to stay in Austin due to its well-paying jobs, lends more credence to an investment in real estate. The revenue numbers for properties show that demand for traditional and short-term rental services, like Airbnb, increased in 2019 and are on an uptrend; a further argument that makes Austin one of the best places to buy a rental property.
3.Brooklyn, NY
The city of New York is enough to deter many real estate investors. After London, England, New York ranks 2nd in the international market due to investors coming from all corners of the world. The New York City real estate market, however, is not for the risk-averse, as it is subject to the volatility of an international investment hub and the boom-bust cycles this brings. New York has always been an expensive market as it is difficult to find quality available properties at affordable prices. For those interested in making greater returns or buying properties that can be rented out at a premium, Brooklyn, New York is optimal.
While Brooklyn’s exorbitant costs hinder new construction, this is changing as the city government, the real estate board, and construction trade unions are starting to work together to increase the supply of new properties so as to support growth. The high demand for properties and corresponding low supply offset the potential volatility of the market, making New York City a calculated risk that can yield high returns.
The high occupancy rates and rental income in the Brooklyn market make it a good choice to own multi-family properties. Investors need to keep in mind that New York still enforces some of the strictest regulations on Airbnb rentals. This may be a deal-breaker for some. For investors chasing higher returns and having the ability to purchase in New York, they will find Brooklyn to be one of the best cities to invest in real estate.
4.Denver, CO
Besides being the capital of winter activities, Denver is a city with an influx of migration from all parts of the United States. Short term rentals via Airbnb are very profitable with many visitors renting apartments and houses on a short term basis. The city of Denver has shown that it is friendly towards Airbnb and other similar platforms as millions of dollars are collected as tax revenue.
Even though the Denver market is on the rise, prices are still within range for most investors despite the increasing demand. Out of the cities on this list, Denver is at the low end with regards to the average number of days properties stay on the market, that number being 57. A lively construction industry makes Denver one of the best cities to invest in real estate, whether for buying a house or purchasing land so as to build from the ground up.
5.Nashville, TN
Nashville’s rental market is booming with demand for traditional and short-term rentals. With an unemployment rate reported most recently at 2.4 percent in February of 2019, Nashville holds the title for lowest in the country for large metropolitan areas. Besides being a major tourist attraction, the city’s growing economy is attracting many young professionals that are moving in on a permanent basis.
Nashville is a landlord-friendly real estate market, which is a positive argument for those looking to invest. Regulations are favorable and the city is set on further sustaining the recent economic uptrend.
6.Boston, MA
It’s a well-known tenet of finance that past performance does not guarantee future returns. Having said that, an investment that has traditionally shown to be reliable is a good indication as to the value it holds. Boston’s position as one of the best places to invest in real estate has been confirmed time and time again, most recently in the last housing crash. Prices may be expensive, but rental demand is high and buyers are guaranteed a good return on their investment.
Boston is known as a college town. Many students elect to live off-campus and the healthy job market provides jobs for students from all over the country after graduation. For investors looking to capitalize on short-term rentals, Boston’s rich history and culture solidify the city as an attraction for tourists year-round.
7.Raleigh/Durham, NC
The Raleigh/Durham region is a real estate market that should be considered by potential investors that are risk averse and are looking for good returns. The area’s economy is expected to grow at a rate that will surpass the national average. Coupled with its status as a college town, employment growth and incoming professionals under the age of 44 set the stage for a healthy uptrend.
8.Orlando, FL
Owning real estate in Florida has been considered a good investment for decades and this is not changing anytime soon. Orlando’s population is seeing a drastic increase at a rate of over 7 percent. Florida’s reputation as a retirement State is counteracted by an annual job growth rate for Orlando of 4.4 percent bringing in many young professionals looking to start a career.
9.Tampa/St. Petersburg, FL
Population growth and an increase in jobs make the Tampa/St. Petersburg region one of the best places to buy a rental property. The fact that Florida has no personal income tax means that investing in Tampa is a profitable choice. High homebuilding numbers indicate that there is a strong demand for new housing. High liquidity and property affordability corroborate that the Tampa/St. Petersburg real estate market is a bargain offering a great opportunity for returns.
10.Boise, Idaho
The tenth and final city on the list is Boise, Idaho. This choice is for investors that are interested in entering a smaller market. In 2018, Boise led the nation with a 3 percent population growth and is expected to continue growing at a healthy pace.
Although home values have gone up 15.3 percent over the past year and may make investors wary of a potential bubble, projections are estimating a further 1.8 percent rise over the coming year.
Indicative of the opportunity Boise provides those looking to invest in real estate, a four-bedroom home can be found, in some cases, for as much as $100,000 below the national average. This makes buying and renting out single-family homes a good business model in Boise.
Bonus: Toronto, Canada
While not an American city, investing in our neighbors across the border may be a great way to diversify your real estate portfolio. This is especially so if you’re looking to take up residency in Canada due to laws around capital gains taxes on non-residents.
Toronto was a hot destination for Americans immigrating to Canada. It has also been ranked as the 7th most liveable city by the Economic Intelligence Unit. Did we mention that the houses there look absolutely gorgeous? Just take a look at some of the beautiful listings on Chestnut Park.
The fruit is ripe for the picking too. The market has cooled in recent times. While the market was previously at risk of being overvalued, prices fell by 5.4% in 2018. This makes real estate in Canadian cities like Toronto much more affordable.
There are no restrictions on non-residents and non-citizens when buying Canadian property. It’s proximity and use of English as the language of administration also make it attractive to many American investors.
However we recommend investing in Toronto for rental income rather than capital gains. This is due to a heavy 50% tax on the sale of any property by a non-resident.
Conclusion
Investing intelligently in real estate requires doing the necessary due diligence and utilizing effective forecasting. Taking into account all the factors that make a market a net positive opportunity-wise is what removes high risk from investing. What type of property will provide the highest return? How many years will it take to recoup the investment? What are all of the associated costs, both direct and indirect, that need to be made? What does the economy of a city show about its ability to withstand an economic downturn that could affect the real estate market?
Real estate is always an appealing asset class for investors due to its ability to provide passive, recurring income. Interest rates are still at low levels and debt remains cheap. For investors with access to credit, or with available capital to invest, buying rental property is a good opportunity in the United States. It is just a matter of finding the right city and the correct property in which to invest.
