In response to a blog I saw online, I had commented with a quick analysis of some great rental markets out there right now. The conversation was about markets having either good cash flow, appreciation potential, or both. Here was my analysis. Remember, I just taught you the difference in the macro- versus micro-markets. This list is all macros, just FYI. And it pertains to buy-and-holds only.
The Good: (good price-to-rents, taxes and insurance are affordable, great population trends…)
Phoenix– new construction is now cheaper than existing properties. Turnkeys are no longer the way to go. New construction only. (that window closed about 6-10 months ago)
Atlanta– the hottest market right now, but following Phoenix’s trend, so it won’t be much longer before new construction is the way to go there too. High cash flow, appreciation potential is very high. The appraisal system is broken, tho, so financing is a little squirrley.
Memphis– good cash flow, mild appreciation potential, but limited exit strategies because 45% of the population rents so resale later will likely be to another investor.
Charlotte– good cash flow, medium appreciation potential, smaller city but up and coming, especially being so close to Atlanta.
Houston– lots of built-in equity from the start (good appraisals), good cash flow, good appreciation potential
Indianapolis– crazy high cash flow! Little chance of appreciation but because of a very stable market.
The Bad: (only two of many examples)
Los Angeles and Florida– Bad price-to-rent ratio (no cash flow), tenant-friendly states (can’t get rid of bad tenants easily), property tax and insurance expenses are crazy high
Detroit– Don’t let the numbers fool you. Detroit investors have been in trouble for awhile. Tenant-friendly state with bad tenants (at least for where the investment properties are). Good chance a drug lab will be set up in your house and deem it uninhabitable and then you have a total loss. Not judging, just stating facts.
Again, remember, these are the macro-markets. You want to know more about the micro-markets within these before you invest. Research wisely. (or ask me!) I just don’t want to write the world’s longest blog spelling out the micros too. But this list should give you a good idea at how different markets are in fact different, and hopefully helps you realize what you should look for when picking a market.
1st rule: Don’t lose money. The numbers should justify your decision to invest there.
2nd rule: I’m human. I know people have unjustifiable preferences sometimes. Some want cash flow, some want appreciation potential, some want southern, some want western…whatever. Just make sure the numbers support it.