Since 1999, I’ve lived in and invested in so called 24-hour cities. These 24-hour cities include New York City, San Francisco, Los Angeles, Chicago, Boston, and Washington D.C.. These cities never seem to sleep, hence the term 24-hour cities.
Real estate markets in 24-hour cities have done extraordinarily well over the past several decades due to tremendous job growth and income growth. 24-hour cities have also attracted the attention of international real estate investors who also want a piece of the American dream.
As a savvy investor, it’s always a good idea to look ahead into the future. If you can get even a murky glimpse of the future, you will eventually become a vary wealthy person if you invest properly.
In my mind, the rapid real estate appreciate of 24-hour cities is over. When it costs $1.6 million to buy the median home in San Francisco, it’s hard to see double-digit appreciation rates in the immediate future.
Instead, investors should find out which cities are the next San Francisco or the next New York City. This is where investing in 18-hour cities comes in.
Definition Of An 18-Hour City
An 18-hour city is a second-tier city with the potential to become a 24-hour city due to:
- Higher-than-average population growth
- Higher-than-average job growth
- Higher-than-average wage growth
- Lower valuations
- Higher cap rates
An 18-hour city has the strong potential to eventually become a 24-hour city due to the following reasons:
- Fantastic job opportunities
- Solid public transportation infrastructure
- A strong economy
- Affordable housing
- Lower capitalization rate compression
- Urban develop
- A stable local government
- Anchor companies
As a real estate investor, your goal is to identify 18-hour cities that have these attributes to provide the most growth potential.
The downside to investing in an 18-hour city is that they may never turn into 24-hour cities. Instead, property prices may languish. But if you are a savvy investor, you’ll at least find properties that pay a high net rental yield (cap rate) while you wait.
Examples Of 18-Hour Cities
Below is a list of Realtor’s top metropolitan areas for 2020 and beyond. I would rate all the cities, except for Honolulu, 18-hour cities due to their relatively low median home prices and high growth.
Other cities that should be considered 18-hour cities include: Dallas, Atlanta, Orlando, and Salt Lake City.
As of January 2020, these cities are also projected to perform well with regards to job growth, wage growth, and home price growth, outpacing much of the rest of the nation.
According to CrowdStreet, a leading real estate crowdfunding platform that focuses on 18-hour cities, projects in these secondary markets can sometimes be overlooked by large institutional investors (creating equity gaps) and therefore create investment opportunities for individuals.
Crowdstreet believes Charleston, SC has the best claim as the next big up-and-coming 18-hour city. due to Charleston’s average five-year job growth of 2.9% is nearly double the national average of 1.6%. CrowdStreet recently raised over $5 million for a 50-key, luxury boutique hotel development in the French Quarter of Charleston.
Here’s also my list of the best cities to buy real estate in the new decade based on demographic trends, job growth, and tax rates.
Why Move To An 18-Hour City
Having lived in New York City and San Francisco since 1999, I’ve been blessed with job growth opportunity working in the finance, tech, and startup space.
However, it has become clear to me that it is becoming extremely difficult to get financially ahead living in a 24-hour city, especially if you want to raise a family.
The California Association Of Realtors and Compass Real Estate Group, for example, estimate that it takes an income of over $300,000 to comfortably afford a median priced home in San Francisco as of Q32019.
Having such a high income required to afford a regular old house does not allow for much real estate price appreciation because a top 1% income is roughly $400,000 in America.
Can you imagine a household making $300,000 a year and just going through the motions every year, unable to save a lot for retirement due to such high home prices? To give you an idea, below is a sample budget for a household that makes $300,000 a year.
The lifestyle is good, but the parents are never going to retire early, especially if they want to have a second child. This $300,000 a year household is squarely in the middle class.
The reasons why there will be a multi-decade migration shift towards 18-hour cities is obvious: greater affordability.
Thanks to technology and the rise of remote work, more and more employees are able to make 24-hour city money while paying 18-hour city living costs. This arbitrage is attractive and being allowed more frequently by large employers such as Google, Facebook, Uber, and more.
No longer do you have to physically sit in on a meeting. You can teleconference over your laptop or mobile phone for free.
No longer do you have to pay $4,500 to rent a two-bedroom apartment. You can buy a 2,800 square foot, three bedroom, two bathroom single-family home with a yard for $350,000 and have plenty of cash flow left over.
With the accelerated trend of working from home due to the coronavirus and the lockdowns, there’s no doubt in my mind that more people living in expensive 24-hour cities will migrate to 18-hour cities to save money. However, before they do, there will likely be a migration to less centrally located areas of one’s existing city first.
The Best Way To Invest In 18-Hour Cities
Thanks to the JOBS Act that past in 2012, individual investors are more readily able to invest in real estate opportunities that were once only for ultra-high net worth individuals or institutions.
The best way to invest in 18-hour cities is with a real estate crowdfunding platform like CrowdStreet. They were founded in 2014, and are themselves based in Portland, an 18-hour city. You can read my comprehensive review on CrowdStreet here.
CrowdStreet’s platform is primarily focused on secondary metro markets with the greatest potential upside. I’ve spoken to a handful of CrowdStreet employees and investors in person for a couple hours and really like what they have to offer.
Below is a sample of previously funded offers by CrowdStreet. What’s also unique about CrowdStreet is that they employ a direct-to-sponsor model, which enables investors to invest directly with the sponsors. This way, there is better transparency and more efficiency.
I personally have $810,000 invested in real estate crowdfunding mainly in 18-hour cities such as Austin, Dallas, and Phoenix. My goal is to diversify my SF-heavy based real estate portfolio and earn income as passively as possible.
CrowdStreet’s business philosophy of investing in 18-hour cities is aligned with my multi-decade thesis of investing in the heartland of America. I believe it is an inevitability that a an 18-hour city will eventually become a 24-hour city. When it finally does, its real estate prices will have handsomely rewarded the investor.
You can sign up for CrowdStreet here. It is free to sign up and explore.
