Forbes: The Best Markets For Real Estate Investments in 2019

[Tom Ott]

Hello Everyone!

I saw this article last night and I was wondering how many of you feel the same? They seem to be all over the place, which is probably a good thing! It looks like some of the older investment cities have fallen off the list and some newer ones have joined the list! I am from Cleveland and I am not surprised it made it, but some of these others are news to me! 

Read about it here: The Best Markets For Real Estate Investments In 2019

[Chris Martin]

What does 'best' mean?

Let me do a quick analysis on a $295,000 house or apartment in Raleigh with a rental price of $1,116.

First, consider taxes as a percentage of gross rent. In Raleigh, the combined tax rate is 1.0926 of assessed value. Per , 'Wake County performs reappraisals on a four-year cycle. The most recent reappraisal in Wake County was effective as of January 1, 2016.' So I will use 80% (the approximate average improvement part) of $295,000 as the assessed value basis which results in a roughly $2,600 (some fees added per WC.) That's $217 per month, or 19% of gross rent. Calculate in a few (2) % for vacancy, and management fees of 6% (I know, maybe a little low) and we're down to ...

$1,116 - $217 - $89 = $810.

If an investor considers leverage at 80%, with current rates of 5% and $236,000 borrowed, per you will be paying more than $810 per month in interest payments for almost a decade.

So, shelling out $59,000 (the 20% down) results in a negative return, from an operational standpoint, most likely for years to come until rent prices improve to get your investment to break even. Likewise cashflow will be negative. The silver lining may be that the taxable loss may offset other income but in many scenarios, the offset is limited. What I see from the article is 'best' must mean future appreciation more than cash flow or positive net income.

Note that I've not included potentially significant expense line items (repairs, etc.) or reserve set-asides so the numbers are actually worse than what I've presented. 

If this is the 'best' I'd hate to see the worst. The example above, using the numbers from the article, is an investment I would not make and I would not recommend to any of my investment partners/members. But that's just me. 

Also note the author states: "I’d have no trouble investing in any of these markets (although I’m not an investor)..." Take that for what it's worth.