“Location, location, location” is an age old saying in real estate and it still holds true. But what makes a location great? The answer is going to vary depending on who you talk to and what you’re looking for. Some locations will be great for city nightlife and some for peace and quiet away from the hustle and bustle. Some locations are great because to us they’re comfortable and familiar. Some locations provide great job opportunities. But which locations are the best for investing?
Many people invest in their own cities and neighborhoods for a number of reasons. I get it, it’s familiar, you know the area well and it’s important to know your market if you want to find the best deals and accurately underwrite deals. Maybe you know someone locally who invests, or already know a good local property manager or handyman. Heck, it’s easier to keep an eye on investments if they’re only a short drive away. These are all great reasons to invest and backyard investing is a great tool for those looking to actively invest and be hands on with their projects. It’s a lot easier to flip houses and achieve a return on sweat equity if your project is nearby.
If you’re not an active investor however but still want to invest, it may benefit you to take a broader look at the entire USA or even the entire world and find a location that may be better suited to help you achieve your goals. Sometimes the best deals for your investment strategy aren’t in your market. For example, if you’re investing for cashflow, then San Francisco or New York City aren’t going to provide much, if anything, in the way of regular cash flow. On the other hand, if you’re investing for appreciation, then Oklahoma City probably isn’t going to provide you a high degree of natural appreciation. There’s nothing wrong with any of those cities or any strategy, but it’s important to match the market to your strategy.
The affordability of your local market can also play a role in your decision to invest. I can certainly relate to not being able to afford my local market. When I began investing in real estate I had just graduated college and was working in the SF Bay Area. I couldn’t afford to even look at property in my local market. Instead I chose to focus my efforts in Kansas City Missouri and found a lot of success investing in a lower priced market.
The first step in identifying the right market for you is to define your goals. Do you want to be an active, or a passive investor? Do you want to focus on cash flow, or appreciation? How much capital do you have? Is it enough capital to invest in a high priced market like New York City? Are you looking for steady returns and low volatility or are you prepared to take on some additional risk for more potential reward? Once you can answer these questions, begin looking for markets that fit your criteria.
As a general rule, high priced cities like Los Angeles, Seattle, New York City, San Francisco, Austin, and Orlando tend to have high rates of appreciation. These powerhouse cities lead the country with high rents and even higher prices. Because these cities are seen as safe bets, people are willing to pay a premium to own property in them, this drives prices higher and makes it harder to achieve good cash flow. Lower priced cities, many of them in the midwest, like Columbus, Indianapolis, Oklahoma City, Kansas City, and Memphis have less of a draw and a much more favorable price to rent ratio. This allows investors to achieve great cash flow returns. Additionally, because of the lower prices, investors are able to purchase more properties and achieve even greater returns.
If you’ve asked yourself all the questions above and would like to learn more about how to achieve your investments goals, we would love to speak with you. Feel free reach out to us here at IronGall Investments. We would be happy to discuss your investment goals and find out how we can help.