Long term investment prospects of New England?

Question

What does everyone think the long term (>20 years) investment prospects are for New England? I have seen some things that concern me and want to get other opinions.

In terms of population and economies, it seems everything is moving south and west. Texas and the West Coast are growing at a rate that leaves New England in the dust. The main drivers seem to be the weather and low col compared to the East Coast.

Massachusetts' GDP in 2018 grew at half the rate of Texas, and 75% the rate of Colorado (https://en.wikipedia.org/wiki/List_of_U.S._states_by_economic_growth_rate). Rhode Island and Vermont grew far less. Furthermore, many economists predict a decrease in college enrollment in the next 7-10 years, which will disproportionately effect New England (https://www.bloomberg.com/opinion/articles/2019-05-30/college-enrollment-bust-is-headed-this-way-by-2026).

There are of course some promising signs. New Englands economy is extremely diversified, which means it has and will likely continue to fair better in a recession as opposed to other regions that focus exclusively on gambling or tourism or manufacturing. Many of our economies, like healthcare, will never go away. Plus, for short term investments, like value-adds and rehabs, there is more money (in straight dollars) to be made if you have the capital to do it. A 30% value add on a $600K house in Boston is more profit than a 30% value add on a $200K home in Oklahoma. The college slowdown is predicted to not effect elite colleges, of which New England has more than any other region. But while our 4 Ivies will be safe, as well as places like Northeastern, BU, Tufts, Wesleyan, and MIT, there's no denying that we also have a disproportionate share of colleges no one has ever heard of that will be hurt.

All of this together, should we fear investing long term in New England? Will the region 20 years from now be a relic of a past time, the same way that Ohio was one of the centers for economic activity in the 1900's? Or will it be in the same standing as most large cities are today, economic hubs where cash flow is sacrificed for safe and sturdy investments?

For now, I've considered continuing to pursue value adds in New England, where I can make a higher profit in pure dollars, and then investing that in these growing cities with cheaper costs, like Dallas. That said, I'm looking to owner occupy a triplex in NE, as well as hopefully pick up a couple other investment properties in the area where I can self manage it easily and get strong cash flow, and fear the long term prospects and implications of the region.

Charlie MacPherson · Answer

@Tyler Lee I can't point to a source for this, but I've been hearing that the growth in TX has a lot to do with people fleeing CA due to the mess that's in some parts of the state.

I'm not convinced that red hot population growth is necessary for investing.  Sure, it will help to drive demand, but people will still live in slower growth areas.  There will still be demand for housing.  There will still be run down properties that need repair and can be sold at a profit.

The rust belt was one example where investing turned bad for a while.  As foreign manufacturing gained so much in the 70s and 80s, factories were shuttered and people left - but many of those same ares turned around and are being revived.  Look at Detroit for example - oft maligned on BP podcasts, but there are now pockets of the city that are coming back.

Long story short, I wouldn't write New England off.  Not by a long shot.

Anthony Thompson · Answer

@Tyler Lee real estate is cyclical. I don't think New England has good prospects short to medium term (5-15 years). After that, it's a guess, but I think things will swing back around to this part of the country at some point.

This part of the country suffers from high taxes and over-regulation, and demographically people (especially older people) and companies have been moving to other parts of the country, as you noted.

I think it will take a lot of time, and a change in political leadership (probably several changes) for there to be a will to make our part of the country competitive again, for the tax burden to businesses and individuals, but I think it will eventually happen.

There could also be some change that we can't even foresee yet, for example maybe in 15-20 years climate change makes the southern part of the U.S. a lot less desirable than it is currently, making the Northeast look better in relative terms, right around the same time (hopefully) we get new political leadership which tries to lure individuals and businesses back from other parts of the country.

It's hard to predict that far out into the future, but again, things tend to happen in cycles, so while I would never recommend anyone move to the Northeast right now, if you have to be here for some other reason (e.g., family), I think the trend will eventually swing back in the Northeast's favor.

Scott Hollister · Answer

@Tyler Lee I think you answered your own question with your response. I think there are conversations for and against New England, just like there are for the majority of the southern states.

I just went two of our largest yearly real estate outlook conferences in Connecticut, I am also on the board for commercial real estate here and this "outlook" talk is always a heated debate. One conference was with the Uconn Real Estate program, often top 10 in the US. To summarize, we are losing 100k jobs and replacing them with 30-50k jobs, which effects the economic effect of the 100k job, hurting the creation of more employment.

The second conference was with Dr. Yun, chief economist for the national association of realtors. Nationally we are coming up on our histories longest economic expansion ever. Whats unique about this one, and what might impact the inverted yield curve to signify a recession, is that we are in a very low interest rate environment. Here are some highlights from his slide,

Consequences and Solutions:

From what you said, purchasing value add properties, on the smaller scale, you will be fine. When you talk about purchasing large multifamily or commercial buildings, depending on the area, that is when you really need to dial in on the local economics, politics, and outlook. It is still great to know these things, but not necessary to write a dissertation on it before investing and taking action. The important thing to follow is quality job growth in a diverse economy. Boston is a great city!

@Anthony Thompson did a wonderful job explaining as well!

David B. · Answer

A lot of good points above.  I'd just add that I dont really view new England as one market.

I think there are areas where there is population and economic growth, like Eastern Mass.  And areas where the population, I believe, is slowly declining like Northern Maine, the berkshires; parts of CT.

I believe southern NH iand maybe Southern Maine are also growing and economically expanding.

So, while all of New England share a lot of characteristics, there is also some variety.

Frank Patalano · Answer

Since Anthony's answer is amazing I will only add that people have been saying the same thing about New England's demise for the past 20 years and beyond. In 1996, I heard the same things and it was true then as it is now.

Until this year I had 98% of my assets in RI real estate. Finally starting to branch out a little. Still I appreciate investing where I can drive by the property and where I can have success through networking.

Gabriel Edgar · Answer

@Tyler Lee, I would suppose it really depends on the specific area. I’m not very familiar with MA or northern ME, but I know where I live in southern NH, one town or area in a town can be near peak of market, while just the next town or two over, or even the next neighborhood over it could appear to be trending up.

No matter the area, one can still find ‘deals’ in a topped out market.

Even if a market is at its top, one could definitely find some deals, or be creative with a property to make it a benefit.

One nice thing I like about the area of southern NH I’ve been running numbers in is that the value and rent swings are less extreme, even though they are there.

Anthony Rosa · Answer

it depends where in New England.  My friend bought a rehab in Connecticut near Mohican sun casino and does well with rent.  You can do better in medium to lower income areas then in places like Greenwich or Cos Cob.

Christian Allen · Answer

@Tyler Lee I have similar hesitations about investing in the area as you do. The way I see it, it's unlikely things will suddenly go bust overnight in just this region of the country and property values drop significantly.  More likely if there was going to be a downward trend in the NE it would happen over many years at which point someone with their eye on the market would notice and could get out before their returns were washed away.

If you can still make money in the area, I see no reason to stop. If vacancy rates start to climb and property values drop it may be time to exit the market. The NE has some of the lowest vacancy rates in the country so the demand for housing is strong.

Long term investment prospects of New England?

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