5 Underappreciated Markets (With Promising Appreciation): July 2020 Markets of the Month

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There are real estate deals all over the country—no matter the size of your market or the average income level. In fact, looking beyond today’s standard “hot” markets can land you ideal investments with less competition. For July’s Markets of the Months, I examined real estate markets across the country, looking for a wide variety of investor-friendly metrics in markets that haven’t yet hit the national investment radar.

Using BPInsights’ unique market data, I found an abundance of markets with strong underlying fundamentals. Even better: The search was easy, thanks to the sheer scope of our information.

The following markets interested me personally—and I suspect they might intrigue you, too. Let the analysis and summary below serve as a jumping off point. Next, use our proprietary BPInsights data to examine other markets to find your perfect fit.

Read on to learn:

• Which five U.S. markets promise sunny futures for savvy investors
• What metrics can help you pinpoint the best markets for your own investments
• The key to finding your own “hot” markets that suit your investment strategy.

Boise, ID: Staggering appreciation and rent growth

I’ve been hearing buzz about Boise for years. Investors often compare it to the city where I primarily invest—Denver—so I’ve wanted to learn more for myself.

As it turns out, the buzz is well-deserved! Boise has seen a truly impressive 10 percent average rate of appreciation since 2017. The median home price has risen from $240,000 to about $318,000. That’s a staggering growth rate. However, appreciation is slowing slightly. Last year’s year-over-year (YoY) appreciation was four percent.

For investors primarily seeking cash flow, Boise offers mixed metrics. The city’s rent-to-price (RTP) ratio is 0.44 percent. Not terrible—but not the market’s strength, either.

It’s the rent growth rate that truly stands out. Over the last three years, rents have grown at an average rate of 15 percent per year. Last year, they grew 13 percent, meaning that growth is continuing. I personally believe these new, higher rents are sustainable because the city’s rent-to-income ratio (RTI) is 29 percent. Personal finance experts recommend that tenants pay around 30 percent of their income to rent, so it’s encouraging to see that Boise comes in below that metric. The average tenant pays 29 percent of their income to rent.

Lastly, the city grew 10 percent between 2010 and 2018, the last census estimate. That indicates that housing demand should be increasing.

Overall, I’m impressed by Boise. I’ve heard wonderful things about the city’s quality of life and access to the outdoors—which makes me want to plan a trip to see it for myself.

Mesa, AZ: A major city with a growing population

Real estate investors have flocked to Arizona over the last several years. I’ve written before about the strong potential of both Phoenix and Scottsdale. But I wanted to take a look at another Arizona city that deserves some attention: Mesa.

Mesa may be part of the larger Phoenix metropolitan area, but with a population of 500,000, it’s a surprisingly large city in its own right. (Maybe that’s not surprising to most people. I had no idea!) And it’s actively growing—18 percent between 2010 and 2018. That’s the largest population growth of any city on this list.

That growth is fueling great investing metrics. The average home price came in at $307,000, up from $229,000 in 2017. That’s 10 percent appreciation. However, like Boise, it does appear to be slowing: Appreciation came in at three percent last year.

In fact, other than the size (Boise is less than half the size of Mesa), Boise and Mesa are very similar markets. Mesa’s RTP is 0.42 percent, and the city’s rent growth has been enormous—averaging 12 percent since 2017. Even their rent-to-income ratios are the same at 29 percent.

If you’re eager to bask in Arizona’s sunny investment market, add Mesa to your list.

Syracuse, NY: An affordable option with a stellar RTP ratio

When I conduct market research, cities in western New York often pop up on my list. I love seeing this—I studied at the University of Rochester, so the area holds a special place in my heart. If you’ve never tried a garbage plate before, you must. Trust me. I know it sounds weird, but it tastes amazing.

Any while Buffalo and Rochester are both great cities for investment, Syracuse is another western New York college town worthy of consideration.

First, Syracuse is affordable. Its median home price—$104,000—is the lowest entry point of any market on this list. An investor with $30,000 could confidently get a conventional loan in this market. And although the entry point remains low, homes are appreciating—averaging nine percent since 2017.

Where Syracuse really shines is its 1.08 percent RTP ratio–by far the best on this list. That ratio is driven by the low cost to purchase a property in Syracuse, coupled with relatively high rents (median of $1,125 in 2020). And those rents are growing, with average gains of 10 percent since 2017. Last year, they gained 13 percent—which implies that rent growth might be accelerating.

While this all appears at first glance to be a slam-dunk market (and it very well may be!) two points of caution on Syracuse.

• Rent-to-income ratio: 37 percent. Not terrible, but a bit high for my liking, particularly because of how fast rents have grown in the last few years. To me, that implies rent growth might slow down considerably in the near future. However, even with slow or even negative rent growth, the city still offers elite cashflow.
• Population loss: two percent since 2010. The city is shrinking. Lower demand could mean slowing growth rates. But for now, it doesn’t appear to be impeding the cities fundamentals.

Edmond, OK: An intriguing (and affordable!) market with undervalued rents

I knew very little about Edmond prior to conducting this analysis. But what I’ve learned is very intriguing.

Edmond is a relatively affordable market with the median home price of $248,000 (as of June 2020). The city has averaged six percent appreciation since 2017. Yes, that’s the lowest on this list—but still a strong number, and something most investors would be very happy with.

The RTP in Edmond is the second highest on our list, coming in at 0.64 percent. That is largely fueled by huge recent rent growth. According to our data, rents have increased a staggering 30 percent in the last year and averaged eight percent growth since 2017. Thirty percent is a huge number and could be an anomaly (COVID has made some rental markets go nuts!), but many of the other underlying numbers back this up.

What I mean by that is this: Despite that 30 percent rent growth, rents might still be undervalued. Edmond’s median income is very high—$78,700, according to the census. That income level is nearly 50 percent higher than any other market on this list, making the rent-to-income ratio just 24 percent. To me, that means that the huge rent growth in Edmond is in fact sustainable.

Impressive population growth further bolsters the city’s fundamentals: Edmond saw a 16 percent increase between 2010 and 2018.

All in all, Edmond seems like a market with a reasonable entry-point and lots of upside in terms of cashflow and appreciation.

Tacoma, WA: Surprising potential in the Seattle metro area

Seattle is one of the most expensive cities in the country in which to buy property. So it makes sense that many investors ignore the area entirely. But I wanted to see if any markets in the greater Seattle area offer good buying opportunities—and I found one: Tacoma.

Tacoma sits about 35 miles south of Seattle and is a relatively large city in its own right, with a population of about 220,000. With a median home price of $343,000, Tacoma is modestly more expensive than Boise and Mesa—and the most expensive city on this month’s list. Still, that’s about half of what you would expect to pay in nearby Seattle.

Appreciation in Tacoma has been excellent. Since 2017, the city has seen an average of 10 percent appreciation, and last year it hit 11 percent—signaling that appreciation isn’t slowing.

At 0.43 percent, the RTP is similar to Boise and Mesa. Since 2017, rent growth has averaged 6 percent per year. That’s the lowest on our list but still very strong. With an RTI of 30 percent, rents appear to be priced appropriately.

Lastly, the city grew 10 percent between 2010 and 2018—indicating demand should remain strong.

While Tacoma might not have astronomical numbers, it’s the type of market I personally like to invest in. I like investing around major economic hubs like Seattle because they offer a diverse employment base. That makes the market more stable, even in challenging economic times. It’s also a beautiful part of the country with a high quality of life, which makes me believe that people will always want to live there.

The key to finding your own “hot” markets

There are great investing deals all across the United States—not just in the typical “hot” markets. The key to finding these deals: Look at the underlying fundamentals of a city. You need to understand where the market is now and make a hypothesis about where the market is heading.

To me, these five markets are strong investments now and have the potential to continue to outperform the national average. Check out the raw data below:

What do you think? Have any of you considered these markets or have thoughts on other places to invest?

Let us know in the comments! 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.