Best US real estate market for Rental Property in 2016?

Question

Which US city is the best place to purchase rental property in 2016 and why?

Ned Carey · Answer

Whatever market you know the best. The people who know there market the best, get the best deals.

Enki Amo · Answer

I agree that investing in your own backyard makes it easy to find the best deals, but investing in a place like Ferguson, even for people that live there, isn't likely to be a profitable choice.

I don't see San Francisco appreciating in value much more.  Affordability is an issue and the only people that can afford property are part of the tech community.  I believe property values are near the peak of this market.

I wrote an article on which market is likely the best place to purchase real estate in 2016 and why.

Here it is, copied from my website.

Which Major United States Real Estate Market Will Increase In Value The Most By The End Of 2016?

Throughout the entire United States real estate market, property values are expected to increase an average of 4-5% in 2016, according to Corelogic.[i]   While the market as a whole is moving in a positive direction,  motivated real estate investors are generally looking for more than a 5%  yearly return on their money.  Those investors who are willing to  search for some of the smaller, profitable real estate markets, many of them based in Arizona and Texas,[ii]  should find that these areas increase in value more than 10% during  2016.  However, that is not the scope of this article and is generally  not in the range of a typical real estate investor’s risk profile.   Which market, of the top 20 real estate markets in the US, will see its  median property values increase to the greatest degree in 2016?

Is it going to be Denver? San Francisco? Or Austin?  Let me get the  smudges off my crystal ball from the last time I used it in 2015  and bought bitcoin before it jumped in value.

When predicting which real estate market will increase in value to  the greatest degree in 2016, it is imperative to look at certain factors  that contribute to an increase in overall demand.  These factors  include, population growth, economic expansion, and real  estate affordability.

Real Estate Affordability

When taking real estate affordability into account, crossing San  Francisco and Denver off the list immediately is the likely the right  choice.  Both San Francisco and Denver boomed in value over the last  couple of years and real estate investors who didn’t jump onto the train  at that time shouldn’t make an attempt to do so now.  In San Francisco  specifically, what does $1 million buy you? A loaf of hearty wheat  bread, a shack in the Bay View District, and that’s about it.

When looking at Denver, it still has some potential for property  value improvements, and commercial rental property is still a strong  choice for those who don’t have a problem hosting a marijuana growing  operation. Overall though, how much higher can property values go? In my  opinion, those who invest in Denver in 2016 take on too much risk,  without receiving enough in return.

All in all, expect both the Denver and San Francisco real estate  markets to correct themselves throughout the next couple of years, as  everyday people aren’t able to afford real estate here.

Population Growth And Economic Expansion

Since population growth and job growth go hand-in-hand, it is important to analyze these two factors in a correlated manner.

At the current time, the fastest-growing real estate market  in both categories is Dallas/Fort Worth, TX.  Coming in second place is  Austin, TX.  Charlotte, Seattle, and Atlanta round out the remaining  top five fastest growing real estate markets.[iii]   Since people are moving into these five cities faster than anywhere  else in the nation, an investment in any of these locations should be a  profitable choice.

Which City Is The Best Location For A Real Estate Investment In 2016?

Investments located in Texas can be seen as risky in 2016, as the  entire state economy is tied directly with the price of petroleum, even  though Texas economic representatives try to claim otherwise.  As  petroleum prices sink to newly tested lows, expect the trickle-down  effect to take a toll on the cities in Texas, Oklahoma, North Dakota,  and fracking states, like Ohio.

While Charlotte and Atlanta are both good investment locations in  2016, I believe it is safe to say that Seattle is going to take the cake  in 2016.  With a strong tech sector, plenty of foreign investments, and  a diverse industry overall, demand for the city of Seattle is likely to  be second to none in 2016.

Seattle has been in a solid upward trend since 2012 and is likely to continue its ascent.[iv] While there are certain analysts screaming the “B” word,[v]  I just don’t see this market witnessing unsustainable growth. Since an  economic boom is just getting started in Seattle, I believe that already  high property values will continue to progress higher.

Seattle Rental Property – Safe, Yet Profitable In 2016 And Beyond

The most logical real estate investment in 2016 appears to be Seattle  rental property, as investors should be able to capitalize fully on  property appreciation and increasing positive cash flow, without taking  on much risk.

[i] World Property Journal,. “Corelogic Releases 2016 U.S. Housing Market Predictions”. N.p., 2016. Web. 11 Feb. 2016.

[ii] Insider Monkey,. “15 Fastest Growing US Cities Ranked By Population Growth”. N.p., 2016. Web. 11 Feb. 2016.

[iii] Riggs, Trisha. “Emerging Trends: Dallas/Fort Worth And Austin Are Top U.S. Cities For 2016 – Urban Land Magazine”. Urban Land Magazine. N.p., 2015. Web. 11 Feb. 2016.

[iv] Trulia.com,. “Real Estate Market Trends For Seattle, WA – Trulia”. N.p., 2016. Web. 11 Feb. 2016.

[v]  Puget Sound Business Journal,. “Bubble Trouble: Many Experts Say  Seattle Housing Market Is Headed For A Fall – Puget Sound Business  Journal”. N.p., 2016. Web. 11 Feb. 2016.

Account Closed · Answer

Lots of new MF has come/will come onto the market, causing rents to level off a bit.  If you want to buy MF in a desirable part of town, you're looking at caps of 4-5%.  You can go farther out to a C/D area, but then you're dealing with a different tenant.  Also the median home price has increased 11% year over year and inventory is at the lowest it's been since inventory has been kept track of.  This results in multiple offer situations and bidding wars, driving prices too high to make them good investments.

To find good deals in Portland, you need to look off market, or know the local neighborhoods very well so that you can creatively add value (or partner with someone who does).  The market is inundated with investors and wholesalers mailing letters to property owners.  I get about a letter per week for the duplex I occupy.  I can only imagine how many letters absentee owners receive.

If you want to invest in Portland, your best bet is through your network, IMHO.  This makes Portland challenging for out-of-towners who want a decent ROI.  But if you have a lot of cash lying around and don't mind a 4% cap on a MF, then maybe you can get some appreciation if you hold for a decade or so.

Portland is less one city and more many neighborhoods and pockets; it helps to know them well if you want to be successful investing here.

Luke Calhoun · Answer

Honestly the entire I35 corridor here in Texas is hot.  I work the Austin market where things are certainly cash flowing, but the barrier to entry is high as everyone is buying 250K-400K houses with cash.  If you are planning to buy new homes and rent them out the numbers likely wont be favorable.  Pflugerville, right outside of Austin, is very popular for buy an hold.  Houses are affordable by investor standards and people are moving there to be close to Austin.

Waco, San Antonio, Killeen, and College station are all worth looking at as well.  We have people asking to invest in all of those areas.  Not only are houses cheap, but due to the demographics people are looking to rent rather than own.  They are also good areas for the owner finance model.

Obviously the DFW market is hot, but I am not the best guy to ask about that market.  There are plenty of people on here who can though.

Brian Phelt · Answer

@Joel Bowen Our population is booming and will continue to do so.   The cost of living in San Antonio compared to the other big cities in Texas is lower and businesses are opening left and right.  We have the ability (land-wise) to grow in all four directions so I would say growth here is going to very positive.

Chad Keck · Answer

According to some reports, we're (SA) expected to add something like another ~1m in population in just the next 5-6 years which is incredible. That's not much below the total population today (1.5-2m depending on how far out you count).

Even if this figure is off by 50% that's still going to be huge growth for housing. Get ready!

Adam Acord · Answer

Here are some great sources of information on how the SA market is positioned for growth:

• http://www.utsa.edu/today/2016/05/jobgrowth.html
• http://nreionline.com/single-family-housing/10-cities-fastest-growing-single-family-home-rents#slide-2-field_images-1859961
• http://www.forbes.com/sites/erincarlyle/2016/01/27/best-buy-cities-where-to-invest-in-housing-in-2016/#7ba224f22429

Marci Stein · Answer

Queens Ny. since manhattan and brooklyn are outpriced, queens is the next best thing,

It's still affordable and close to manhattan.

James Paine · Answer

The market that generates the best yield with acceptable tenant quality.  Also, you want to believe that market will be able to generate and keep the spread between its current yield and inflation.  So for me, Detroit and Cleveland are out.

I vote Chicago but I am biasd for sure.

David Thompson · Answer

Enki,

Some good information and appreciate the details.  On Texas, I would just point out to be careful about blanket statements as Texas is a pretty large and diverse state.  Yes, Houston is and will be impacted w/oil down for the time being but this is not so directly impacting areas like Austin and SA IMO.  I've done the research and am very keen on the I-35 corridor between SA and Austin as folks are mentioning.  It's jobs and population increase driven, companies continue to move to a state w/relatively low cost of living, quality lifestyles and this continues unabated w/local economic and industry diversity increasing.  Folks are moving further out  to get lower housing prices and staying close to the I-35 corridor as its a short 60 mile drive between Austin and SA for commuters.  Downtown areas are booming but  are out of reach for most looking for cash flow.

Best US real estate market for Rental Property in 2016?

Most Popular Reply