Top U.S. Cities for Real Estate Investment in 2008

HomeVestors (the “We Buy Ugly Houses” folks) has named the top 10 cities for real estate investing and 10 junior markets for real estate investing in the first quarter of 2008 (Junior markets are cities with a population of 150,000 or more). They are as follows:

1. Dallas, TX
2. Houston, TX
3. Atlanta, Ga
4. Fort Worth, TX
5. St. Louis, MO
6. Philadelphia, PA
7. San Antonio, TX
8. Denver, CO
9. Minneapolis, MN
10. Phoenix, AZ

Top 10 Junior Markets

1. Columbus, GA
2. Panama City, FL
3. Springfield, MO
4. Brevard County, FL
5. Greensboro, NC
6. Lubbock, TX
7. Columbia, SC
8. Ft. Walton Beach, FL
9. Kent/Sussex Counties, DE
10. Michigan City, IN

These findings are based on the number of houses bought in each market by HomeVestors in Q1 of quarter of 2008 (source http://www.homevestors.com/inthenews)

As the Dallas-based franchise company specializes in buying, rehabbing and selling single-family houses and rescuing homeowners from ugly houses and ugly real estate situations, the current downturn in residential real estate makes for a fantastic acquisition environment. As I mentioned in a previous blogpost, this climate of falling prices, inventory oversupply, and resulting homeowner desperation to get rid of their houses, is a prime time for smart investors to go heavy on property acquisition. As long as your exit strategy is to buy and hold, and not to flip (which is going to be very very difficult in today’s climate), and as long as you can afford to hold the property for at least 5-7 years, you should definitely take advantage of these conditions.

I have to admit that I don’t completely trust this data. I mean, I do not doubt that these are the areas where some of the best bargains can be had: HomeVestors does enough volume to observe significant trends. But there are so many other factors that make a city a hot investment market, which can not be ignored; the HomeVestors press release doesn’t address those factors explicitly. For example, the city’s economic development plans, jobs growth outlook, and other macroeconomic factors must be considered. Also, the rental outlook must be considered. As you buy a property, the low acquisition price is only one factor that determines whether you will see positive cash flow (or at least break even). Rents must also be strong and in demand. Overall, there is strong rental demand right now across the nation, as many homeowners lose their homes to foreclosure and many other hopeful homeowners can’t get a mortgage due to tougher standards. But some cities are definitely hotter rental markets than others. If people are fleeting a city due to lack of jobs, rental market will suffer. The HomeVestor list seems to be very TX-centric. By a sheer coincidence, the company is based in Dallas. Hmmm….. I would be very interested in hearing from our readers what they consider to be the top cities for investing.

Another question for the readers: would you consider investing away from home? What are some factors that you consider whether or not you feel comfortable with investing away from home? What resources do you use? Do you work with another local investor to show you the ropes? We are working on a tool that can connect investors to each other, based on area of interest, as well as other investing goals. As various areas of the country may become attractive to investors than their own home turf (Gulf Region GO Zone, for example), we see more and more people venturing outside of their own backyard. And we would love to help investors make the process a smooth one.

DC Urban Development

Last weekend, I attended a networking event in DC, at which Neil O. Albert spoke about the city’s urban development projects coming down the pike. Mr. Albert is the Deputy Mayor for Planning and Economic Development (DMPED). The event was held at Hotel Monaco in the MCI Center / Chinatown area of the District (the hotel itself if gorgeous; a visit to the website reveals that it’s an historic all-marble building that is a Registered National Landmark). I came into the area via New York Ave from the north. I hadn’t been to this area of the District in a little over a year, and I was blown away by all the new construction that was happening. Huge office and residential complexes, shiny and new. As I found out later at the talk, this is part of the NoMA (North of Massachusetts) revitalization plan, which is one of the key initiatives of the DMPED. There is a whole lot more development planned in that part of the NE, making it a mixed-use community, with office, residential and retail assets (check out this blog entry and this release from the DMPED).

At the heart of the DMPED revitalization strategy is the utilization of existing transportation assets, i.e. existing Metro stations. This is an approach that makes a whole lot of intuitive sense, as the underlying infrastructure is already established. In addition to NoMA, DMPED plans to invest in revitalization of Anacostia (including Anacostia Metro station and Ballpark District, which will revolve around a new baseball complex for the Washington Nationals). Bringing this huge project to Anacostia (SE) is a great initiative, as it will bring jobs to the area which has been economically depressed for decades. All in all, $10 billion will be spent on this area over the next two decades! However, my concern (and I am sure a lot of others are concerned about it as well) is whether or not there will remain affordable housing for the area’s current residents. Also, knowing from living in the DC Metro area, how saturated the DC Metro area is with condos, I hope that this new development doesn’t stick the city with a lot of unsold inventory. On the other hand, by the time this construction is finished, we will probably be in an “up” real estate cycle. Having spoken to several real estate folks at the networking session afterwards, there seems to be a lot of exciting development and investment in the area, and most of it doesn’t seem to be hit by the real estate meltdown (at least not as much as the suburbs). Their view is that the demand for real estate within city limits of DC is still strong. We will have to see if this remains true, as the down cycle progresses.