Are you looking for the best time to invest in real estate? Let's take a look at the top three cities in America to invest in real estate.
If you want to achieve financial freedom before the traditional retirement age of 60+, make plans to save, invest, and build passive income. Once you have enough passive income to cover your expenses, work becomes optional. You’ve reached financial freedom!
I became focused on building passive income during the 2008-2009 financial crisis. By 2012, I’d generated enough passive income to replace my salary and leave my job. Today, my wife and I generate roughly six figures a year in passive income.
Real estate is one of my favorite ways to generate passive income. One of the reasons for this is that real estate doesn’t follow the daily volatility of the stock market. Thus, it can be a great way to diversify your portfolio.
But is now still a good time to invest in real estate and in which cities? This is a question I get a lot. In 2022, we're experiencing the highest inflation in 40 years, housing prices are at all-time highs, and construction costs are off the charts.
My general answer is yes, but be more picky. There are always real estate opportunities to be had. The key is to be patient, know your markets, and negotiate well. There's an old saying in real estate, “money is often made on the purchase, not on the sale.”
Real Estate Benefits During High Inflation
Owning real estate has several potential benefits during periods of high inflation. Although real estate-related costs and expenses may rise (for ex: labor, materials, property taxes, utility costs), inflation can positively impact property cash flow and valuation.
The current inflationary environment has been driven in part by rising wages, particularly at the lower end of the wage spectrum. The result has been that incomes have largely kept pace with rising rents, meaning little change to affordability for the average renter.
As property values tend to keep pace with inflation, real estate investors typically experience capital appreciation.
And, when supply doesn’t keep pace with demand, home prices typically increase. This can end up pricing many people out of the market. As a result, this puts more strain on the rental market, resulting in increased rents. This can, of course, result in more passive income for owners and investors.
Rents for all types of real estate tend to rise in times of high inflation. This includes single family as well as commercial such as multifamily, retail, office, mixed-use and more. Personally, I plan to hold onto my rental properties in a high inflation environment to capture higher rents. But the reality is I plan to hold onto my properties forever, no matter the environment.
RealtyMogul especially likes investing in multifamily properties as a hedge against inflation. Investing in multifamily properties across the Sunbelt is a way to take advantage of positive demographic trends.
The Country Is Made Up Of Micro Markets
When looking for a place to invest, one of the most important things to keep in mind is that there isn’t one big “macro” real estate market.
Instead, the country has many micro markets. And, the factors that can make real estate investing attractive vary from one micro market to the next. These include local economic growth, population growth, job growth, median income, average rents, and so on.
So at any given time, it may be a good time to invest in some micro markets and not in others. You really have to look closely at each individual deal and what’s happening in the area. The numbers need to make sense and be in line with your financial goals.
What Makes A Strong Housing Market?
Recently, I had a chance to chat with Jilliene Hellman, the CEO of RealtyMogul, to ask her about what makes a strong housing market.
RealtyMogul is a real estate investing platform where members have collectively invested over $875 million into more than $5.2 billion of real estate nationwide (since inception and as of April 30, 2022). With that kind of volume, I wanted to get Jilliene’s take on what she considers to be the telltale signs of a hot market.
Jilliene shared that there are several things you ideally want to see in a market you’re thinking about investing in:
- Population growth. People, specifically young adults, are moving into the area at a higher rate than to other areas of the country.
- The unemployment rate is on the decline. Ideally there are multiple large employers in the area or moving into the area.
- The average household income is healthy. The people living in the area or moving into it are or will be earning a decent-enough salary that supports a good, sustainable cost of living.
- Demand for housing is high, as reflected in a low vacancy rate.
- It’s an area people want to live in. Crime is relatively low, the neighborhood is safe and ideally walkable. And it’s close to grocery stores, other amenities and major highways.
In addition to Jilliene's indicators of a hot market shared above, also consider looking for markets where:
- The smallest difference in current vs prior break prices, and
- The largest decline in permits compared to the prior peak
Both factors may be indications that demand for housing will likely continue to outstrip supply. Just be aware of the cities most at risk of a housing downturn, partially due to rising supply. You can forecast supply by tracking permit issues for new builds.
3 Cities Where Investing In US Real Estate Looks More Attractive
According to RealtyMogul, here are three cities where economic, population and job growth are all on the rise. It is worth considering investing in the right submarkets in these metros if you find deals that meet all the above criteria and your financial goals.
1) Tampa, FL
Tampa’s population grew by 27% from 2010-2020. This growth is likely to continue as the city is the hottest job market in the state of Florida.
Specifically, the city is home to over 50 software and IT companies and is responsible for over 25% of Florida’s tech jobs. Tampa added more than 175,000 jobs from November 2020 to November 2021 and this trend shows no signs of slowing down.
Here are a few more key stats from Bestplaces.net:
- Average household income: $48,245 (national average is $57,652)
- Unemployment rate: 5% (national average is 6%)
- 10-year projected job growth: 42.67% (national average is 33.51%)
Tampa’s crime rate is also on the low end compared to other major U.S. cities, which makes the city an even more attractive place to live and invest.
2) San Diego, CA
San Diego – the 8th largest city in the U.S. – is widely considered one of the country’s most enjoyable cities to live in with its coastal location and sunny, year-round climate. The seaside city’s population is currently 1.4 million and is expected to hit 1.9 million people by 2050, a 49% increase from 2000.
While Tampa’s job growth seems to be largely focused on the tech sector, San Diego is experiencing a surge in life science venture capital investment.
One example is a huge $1BN life sciences campus called the IQHQ Development Campus is currently under construction in the downtown core. When finished, it will occupy six downtown city blocks. And it will be home to dozens of new businesses and create countless new jobs in the city.
Here are a few more stats of notes from Bestplaces.net:
- Average household income: $71,535 (national average is $57,652)
- Unemployment rate: 6.6% (national average is 6%)
- 10-year projected job growth: 34.94% (national average is 33.51%)
In April 2022, San Diego home prices were up 25% compared to last year. This keeps homeownership out of reach for most residents, which of course increases the demand for rentals.
Data from Zumper reveals that, as of May 2022, the median rent in San Diego for a one bedroom is $2,390, and for a two bedroom its $3,350. This is a 29.2% increase year over year. So if you’re able to buy real estate in this market, you could potentially generate a significant amount of cash flow.
While San Diego’s average crime rate is roughly on par with the U.S. average, its idyllic year-round climate, 70 miles of pristine beaches and other draws still make it a great option for real estate investors.
3) Miami, FL
Miami-Dade County’s population of 2.7 million residents is expected to reach 3 million in 2025. Miami alone is home to 471,525 people, which is a 13.2% increase since 2020.
One of the reasons for this population growth can be traced back to the pandemic. Miami became an attractive place to relocate due to its lax COVID restrictions and zero state income tax.
Countless companies are moving into the city. And they are doing so at a much faster pace than almost anywhere else in the U.S., even possibly on par with Austin, TX. This is driving a surge in hiring of tech workers. As a result, Miami has seen its job market increase by 0.8% over the last year.
In addition, here are more noteworthy stats from Bestplaces.net:
- Average household income: $33,999 (national average is $57,652)
- Unemployment rate: 8.3% (national average is 6%)
- 10-year projected job growth: 42.66% (national average is 33.51%)
The average household income is lower and unemployment is higher than the national averages. However, the beaches, culture, entertainment, and continued projected job growth still make this a highly desirable place to live and potentially a great place to invest.
As far as home prices, the average home costs $520,000, which is up 26.8% year over year. Compare this to the average household income of $33,999, and this is another market where the majority of residents are likely priced out of homeownership.
High Rental Demand
As a result, demand for rentals is high. One bedrooms typically rent for $2,400 and two bedrooms go for $3,155. This is a 47% and 44% increase year over year, respectively.
One potential downside to Miami, however, is it’s crime rate. The city's average violent crime and property crime rates are 48.8% and 62.7%. That's much higher than the national averages of 22.7% and 35.4%, respectively.
However, just as with any city, certain areas or safer than others. Thus, as a real estate investor it’s important to pick good areas within cities where renters will actually want to reside.
How To Invest Passively In Real Estate
Do you want to invest in real estate and potentially earn passive income without having to actually finance and manage properties yourself? You can do so with real estate investing platforms like RealtyMogul.
On the RealtyMogul platform, you can get access to a diverse range of commercial real estate deals in markets across the country, including multifamily, office, retail, industrial, self-storage and more.
Each deal includes transparent, straightforward financials to help you make informed decisions in pursuit of your financial goals.
You can also invest in two non-traded Real Estate Investment Trusts (REITs), which give you access to a whole portfolio of professionally managed properties.
And speaking of transparency, RealtyMogul features a Past Investments page where you can see the returns from deals that have gone full cycle (meaning the properties have sold and all distributions have been paid to investors).
Here are the last 3 deals that have gone full cycle:
Ready to view deals? Click here to see the latest investment opportunities on the platform in cities across the US.
This article is for informational purposes only. It should not be regarded as a recommendation, an offer to sell, or a solicitation of an offer to buy any security. Any investment information contained herein has been secured from sources RealtyMogul believes are reliable. But we make no representations or warranties as to the accuracy of such information and accept no liability therefor. No part of this article is intended to be binding on RealtyMogul or to supersede any issuer offering materials.
Investment opportunities on the RealtyMogul Platform are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Past performance is not necessarily indicative of future results. For additional information on risks and disclosures visit https://www.realtymogul.com/investment-disclosure.