Now that you've played defense and wisely refinanced your mortgage, it's time to play offense and look for real estate purchase opportunities. This post will discuss the top states to buy real estate in 2022 and beyond.
Real estate affordability is up because mortgage rates down. But mortgage rates are now creeping back up. The S&P 500 closed up another 16% in 2020 after a massive rally in 2019. In 2021, the S&P 500 closed up another 27%! Therefore, investors are wealthier overall.
Income is up and employment is recovering. Further, there is the desire to rotate into more defensive assets. The housing market should stay strong for years to come.
It's important to read Financial Samurai or other personal finance sites that write from first-hand experience. If you do, you can usually get a better sense of what's going on in real-time. With better information comes potentially better investment decisions.
For example, when I discussed only being able to find tenants for 15% less than my previous asking rent in 2017 after 45 days of aggressive searching, you could have interpreted the datapoint as evidence that expensive coastal city real estate markets had peaked and were trending downward.
We are only now seeing in the data that real estate markets in many coastal cities topped out around the end of 2017. Just know that by the time the data hits mainstream, it’s often not the best time to make a financial move.
Home Price Growth Rates Since The SALT Cap
One of the reasons why I thought coastal city real estate prices would slow was due to the new tax law that capped State and Local Tax (SALT) deductions at $10,000.
States with some of the highest home prices include: California, New Jersey, Hawaii, Connecticut, New York, and Washington. A homeowner's annual property tax bill in one of these states alone could far surpass $10,000 a year.
Take a look at the chart below. It shows the home-price growth for the 10 most expensive states and the 10 least expensive states.
Decline In Real Estate Prices
As you can tell from the chart, home-price appreciation for the 10 most expensive states plummeted from a peak of around 6.6% at the beginning of 2018 to just 2.6% by 2H2019.
On the other hand, home-price appreciation for the 10 least expensive states stayed steady at roughly 4%. Not only has home price appreciation been more steady, but home price appreciation in the least expensive states is also now higher than home price appreciation in the 10 most expensive states. Further, valuations are much lower and cap rates are much higher as well.
If you are someone who likes low-volatility and steady income, then investing in the 10 least expensive states is attractive.
It is very clear that my thesis of investing in the Heartland Of America is coming true. Red states are outperforming blue states.
However, President Biden is now in power, and the SALT cap deduction might get lifted. One should assume that states like California, New Jersey, Hawaii, Connecticut will benefit if so. With expensive states lagging less expensive states since the pandemic began, I would pay attention to big city living again.
The Top States To Buy Real Estate By Migration Trends
In 2022, things are slightly different. To decide on the top states to buy real estate in the new decade, we should look at migration and supply trends. When people are actually voting with their feet, you know there is real opportunity.
People move to a different state mainly for a combination of job opportunities, quality of living, and cost of living. Inexpensive housing alone is an insufficient reason for moving to a particular state.
Here's some data from United Van Lines 2019 National Movers Study that shows states with the most inbound migration. The heartland states are some of the top states to buy real estate.
Based on the moving study, below are the top 15 places where Americans are moving to plus the median home price and median household income. I've made the data into a chart as well.
Top 15 States To Buy Real Estate
Below are the top states to buy real estate in the new decade by migration and median home price.
- Vermont – $260,000 median home price, $57,000 median income
- Idaho – $288,000 median home price, $56,000 median income
- Oregon – $364,000 median home price, $63,000 median income
- Arizona – $270,000 median home price, $59,000 median income
- South Carolina – $187,000 median home price, $51,000 median income
- Washington – $413,000 median home price, $74,000 median income
- Florida – $246,000 median home price, $53,000 median income
- Washington, DC – $629,000 median home price, $85,000 median income
- South Dakota – $206,000 median home price, $57,000 median income
- North Carolina – $204,000 median home price, $53,000 median income
- Tennessee – $187,000 median home price, $52,000 median income
- New Mexico – $205,000 median home price, $47,000 median income
- Nevada – $302,000 median home price, $58,000 median income
- Texas – $208,000 median home price, $61,000 median income
- Delaware – $255,000 median home price $65,000 median income
Eyeball Test: States To Exclude
Although the migration data is important, it's always good to practice the eyeball test aka the sniff test. The eyeball test basically helps point out any anomalies by asking yourself whether the results make sense.
The clear surprise state on the list is Vermont at #1. Vermont is nice, but it is colder than your naked bum on a cement bench covered in ice. The largest employers are UVM Medical Center, University of Vermont, State of Vermont, IDX systems, Bruegger's Enterprises, Casella Waste Systems, and Killington Ski Resort. These companies aren't exactly fast-growing and high-paying entities.
Further, Vermont has a progressive state tax rate versus zero state taxes in states such as Texas, Nevada, Alaska, Florida, South Dakota, Washington, and Wyoming. The lowest Vermont state tax rate starts at 3.55%, then progressively bumps up to 7%, 8.25%, 8.9%, and tops out at 9.4%. These state tax rates aren't very attractive at all.
However, Vermont is #1 in migration and has a reasonable real estate valuation of 4.6X. Therefore, let's spare Vermont from omission.
Washington, DC, And Oregon
Washington state has a median household income of roughly $74,000, 17% higher than the median U.S. household income of $63,000. But its median home price of $413,000 is 69% higher than the median home price in the U.S. of $244,000. Therefore, real estate in Washington state does not seem to offer great relative value, no matter how many migrants it receives from California and no matter how high Amazon's stock price goes.
The median household income in Washington, DC is roughly $85,203, or 35% higher than the median U.S. household income. However, the median Washington, DC home price is an aggressive 158% higher than the U.S. median home price. Therefore, Washington, DC definitely does not provide good relative value either, no matter how big government gets.
Finally, Oregon, with its $364,000 median-home price (49% higher than the national average) and its median household income of $60,212 (4.7% lower than the national average), is suspect as well. Further, the weather in Oregon is similar to the weather in Washington state, not great. Although, I do like that Oregon has no sales tax and is absolutely beautiful during the fall.
The Top States To Buy Real Estate By Valuation
If you are a value-oriented investor like me, you want to not only look at the top states that are experiencing the most influx of people, you also want to see which states have the cheapest real estate valuations.
You want the SALT Cap deduction to have no bearing on home price growth. Further, you want to have as much price upside as possible. However, President Biden could eventually repeal the SALT Cap, which would be a boon for coastal states again.
Although for a specific property, it's better to value it based on its price and net operating income (NOI), for state-wide real estate valuations, it's best to use the median household income as the denominator.
Based on the chart, the top five states with the best value are: Texas (no state income tax), Tennessee (no state income tax), South Dakota (no state income tax), South Carolina, and North Carolina. Just be careful that several Texas cities like Austin are seeing large permit growth, which means lots more supply.
Top States To Buy Real Estate By Migration & Valuation
To objectively rank the states, the clear solution is to combine the migration and valuation rankings. This way, you remove biased opinions like mine who think Vermont is too cold with not enough high-paying jobs.
The chart below totals the Valuation Rank and the Migration Rank to come up with a Combined Rank for the 15 states.
According to my combined ranking analysis, the top five states to buy real estate based on migration trends and valuation are: South Carolina, Vermont, South Dakota, Tennessee, and Arizona.
Valuations & Demographic Trends Matter
In addition to understanding migration and valuation trends by state, it's also a good idea to see which states are the top money magnets. After all, more money pushes up home prices. Expensive coastal money is why people who live in lower-cost states often object to out of state buyers.
As you can see from the chart above, Florida, Texas, Washington, South Carolina, and North Carolina are the top five money magnet states.
As an expensive coastal city resident looking to diversify his real estate holdings inland, when you combine all the data, below are my favorite five states for real estate investing.
My favorite states for real estate investing are:
- South Carolina – $187,000 median home price, $51,000 median household income
- Tennessee – $187,000 median home price, $51,000 median household income
- Texas – $208,000 median home price, $59,000 median household income
- South Dakota – $206,000 median home price, $57,000 median income
- North Carolina – $204,000 median home price, $53,000 median income
The median home price to median household income ratio of ~3.7X for these five states is attractive. However, your top five states should be different depending on where you live.
Invest Via Real Estate Crowdfunding
Because the future of work is remote, this valuation differential will be simply too great to pass up. Many workers who are armed with the skills to work remotely will. These workers who will want to start families. They will want to buy homes.
The easiest way I know how to invest in these top states is by finding commercial real estate deals through Fundrise (for non-accredited investors) and CrowdStreet (a platform focused on 18-hour cities for accredited investors).
Once the deals are found on the respective platforms, you've then got to evaluate the sponsor's track record, evaluate the deal structure, and calculate the feasibility of the returns.
When it comes to investing, you want to have a tailwind behind your investments. Investing in a long-term migration trend while valuations are low is a powerful combination. In a future post, we'll drill deeper into specific cities.
Personally, I've invested $810,000 in real estate crowdfunding to invest in heartland real estate. I want to earn income 100% passively and diversify away from my San Francisco real estate.
As an accredited investor, I think CrowdStreet has a fantastic platform. Not only does it source high-quality real estate offerings in the heartland, it also has the occasional multifamily or build-to-rent fund. I'd check CrowdStreet out if you want to surgically invest in real estate.
Thanks for such an informative write-up. Those stats were truly useful. And I truly agree that South Carolina, North Carolina and South Dakota are the best states currently to buy new real estate. I am also thinking to invest in Raleigh, NC Real Estate properties. The housing market in Raleigh — North Carolina, has been rising recently. Property values in Raleigh have increased by more than 20% in the last year alone. The exceptionally robust local economy is one of the main reasons for the increase in housing demand in the area.
With the inflow of visitors and inhabitants looking for flexible housing, short-term rentals are in high demand. There are several commercial development properties available that astute investors can purchase for a fair price and then rent for long-term income.
In almost every neighborhood surrounding Raleigh, the average price of a home has risen dramatically. With the increase in the number of well-paying occupations, high-end, high-cost residences have become more popular. The best strategy, particularly in Raleigh, is to seek older homes with rehab potential through short-term loans that are still reasonably priced.
So, based on some factual understanding, it is pretty much clear that Raleigh, NC is going to be sought as prime property by novice as well as seasoned real estate investors.
Hi Sam,
This is 5 k bet Jim…I moved my family and business from Southern California 5 years ago to Eastern Tennessee. Best move ever, wish I had done it 20 years ago… Tennessee is wide open with opportunity. Government that makes sense, low taxes, bankers that will work with you and the Smokey Mts… Love it here I just tell everyone from California that it is full of” red necks”….and move to Oregon or Washington instead….
Tennessee and South Carolina are two of the most crime ridden in the US , a country that already has the highest crime rate of any developed country. Avoid unless you’re a slum lord like the bronx burners of the 1970’s.
Apart from the crowdfunding platforms, do you direct invest in these states? Commercial or residential properties?
Seattle real estate peaked in 2017 and appears to be on the rise again. Hoping that trend sticks around when we try selling this summer. We bought property in Austin, TX and it has been doing well for us.
Have you done any historical back-testing to see if these variables (Migration Rates & Relative Affordability) are really what drive home price appreciation? If so, can you please share.
Out of curiosity, are you factoring in climate change? Wondering if increasing hurricanes and severe weather in select coastal areas like Florida may affect the future valuation of some of the top states you cited. May even make for an interesting article in itself.
Good question. Climate change is not one of the factors in my model. Florida and Louisiana do seem at risk. Insurance is a must.
The only think that has changed my way of purchasing property due to climate change is reconsidering ocean front property. Instead, I’m focused on property on top of a hill with ocean views.
Insurance won’t make any difference. Based on sea level rise property in Miami for example will be worthless in a generation or two. If it was possible to short property in a specific location over that type of timescale I’d do it in a heartbeat.
Thanks for this article Sam. Lots of good food for thought. I have been researching Fundrise since one of your earlier articles and I have started a small investment there, but still want to understand their deals better. Do you have a blog post where you go into more detail about this statement you made? “Once the deals are found on the respective platforms, you’ve then got to evaluate the sponsor’s track record, evaluate the deal structure, and calculate the feasibility of the returns.” In particular, how it applies to analyzing Fundrise deals?
Thank you
Hi Matt – I’ve put together all my research so far on this page: Real Estate Crowdfunding Learning Center
Check it out!
I’ll be writing more in the future.
Thank you. I will check those out and look forward to your future posts.
Sam, thank you so much for your article! I definitely have to agree with the #2 on your list of favorite states for real estate investing. Tennessee is definitely just exploding with growth at every level!
My wife and I were fortunate and bought back in 2013 right outside of Nashville. Back then, houses stayed on the market for a while and it was definitely a buyers market. Since, then there has been an influx of people and businesses at a record rate. A little over a year ago, we had to relocate to another state and sell our home in TN. Our realtor was shocked it took us 3 days to sell our home, since other homes in our neighborhood were selling the same day they were listed.
So I could definitely see Tennessee continuing to boom with so many people continuing to come to the state. Since Nashville is getting so crowded, other cities in the state are starting to reap the benefits of more businesses and people coming every day.
I think youre a little off on your state to state comparison.
I think the much better metric is city to city comparison. For example, the state of Illinois has a lot of people leaving the state. BUT it tends to be lower income earners leaving and they are being replaced (at a lesser number, admittedly) but a much more affluent earners. Furthermore, people are leaving the state but moving to the city of Chicago/ staying in the city longer, rather than leaving the city with their kids. I own several buildings IN Chicago’s Pilsen area (one of top 10 areas in recent Forbes magazine study), all paying me double digit cash flow, not including tax benefits of depreciation, debt pay down and consistent appreciation.
And even within Chicago I wouldnt buy in anything but certain “gentrifying” areas. When it comes to real estate these general studies dont really mean anything.
I would be interested to see how your top few states could have buildings with these type of return numbers, for example:
2657 Luther Year 1 Year 2
Contract Price $775,000
25% Down $193,750
75% Loan $581,250
#1 $1,350 $1,350
#2 $1,550 $1,550
#3 $1,600 $1,600
#4 $1,695 $1,695
Total Monthly $6,195 $6,195
Yearly Income $74,340 $74,340
Tax $4,815 $7,500
Insurance $2,500 $2,500
Water $1,200 $1,200
Maint/Repairs $1,500 $2,500
Vacancy $3,717 $3,717
Move in Fees ($2,000) ($2,000)
Snow Removal $500 $500
Total $12,232 $15,917
NOI $62,108 $58,423
Monthly NOI $5,176 $4,869
Loan @ 4.5% $3,013 $3,013
Mgmt @ 7% $434 $434
Monthly Income $1,729 $1,422
Yearly Income $20,748 $17,063
Cash on Cash Return 10.7% 8.8%
CAP RATE 8.0% 7.5%
And that is with ALL your costs included.
I’d like to talk about this with you, how can I reach you, Lawrence?
Don’t see anyone representing the SW – so here is my input for Arizona (and Idaho too).
Have been a RE investor in Arizona since I moved here from the East Coast in 1991. It has been a great long term market over those ~30yrs with CAGR of ~ 6% in the PHX area. Began to heavily invest after the 2009 downturn and anything you bought at that time was a winner – prices of land+building were below building replacement cost. You had to have some guts but the foreclosure deals and Cap rates >12% couldn’t be beat. Then investment firms came in and bid up everything real quick and the ‘fun’ times faded away around 2015.
Move to today and our SFH inventory has been quiet tight for a number of years and cap rates have begun to really compress. Until a few years ago you could still get a cap rate of ~8% but now seeing CA folks come in and bid things up as the best they can do in CA is maybe 2-4% – so why not to go to AZ (and other mountain west states) and buy at 5-6% cap rates. Great for me!
In-laws live in ID so we also bought up there and it is even worse (or good depending on your view) in terms of home price appreciation and cap rate compression. Bought a duplex there for $173K (all in after improvements) in 2015 and it is now worth ~$450K and rents have more than doubled!
So, coming back to your two points:
1) Low cost states vs. high cost states. Yes, fully agree. Even though AZ has gotten less appealing it is still better than places like CA and you can still get reasonable returns if you level up to 60-70% LTV.
2) Doing things yourself vs. using something like Crowdstreet or Fundrise… I look at it purely as a ROI vs. risk tradeoff. Although the effort is higher, I feel the risk is lower doing things yourself in that you control everything and make every decision. The issue is being able to find good deals and achieve a reasonable ROI with deals individuals can find themselves… It is not that easy today.
We have bought only one property since 2016 and the best Cap rate we could achieve is ~7% now (here in PHX area).
So, I have recently (since 2016) begun to look invest in RE private equity funds (hospitality, apartments, self storage, and commercial). They promote IRRs of >20% and equivalent cap rates of 10-12%. Even if I discount their projections a couple points, I can no longer achieve such returns with a ‘hands on’ approach of doing it myself. So, I made the jump.
It has not all been good but I think, net-net, it is the way to go if you have good confidence in the sponsor. However, there are some important trade off (the risks) you need to be comfortable with – you don’t control anything, you really have to trust your sponsor, sometimes cash flow is accrued but not paid out, you can only exit the investment based on someone else’s decision, etc.
Pro Tip: In this RE private equity arena, I have done both equity and debt deals and I actually find the debt approach better – you get a clearly defined cash flow with a fixed term of a note – so you know your exit. You give up a little on the total return (no equity multiple) but I have gotten current rates as high as 10.25%, paid monthly which is fine by me! There is a bit of risk based on the underlying asset performance (but a lot less risk than the equity deal itself) and the notes are typically renewed every year so you have some visibility to get out if things start to smell fishy.
I actually think this is the best way to go since I can’t easily get such returns myself through SFH or MFU investing (even if I could there is some ‘pain’ in the active management part as you get older). Plus, the debt deals are nice, clean, easy to exit, and my money isn’t tied up long term.
Thank you for taking time to share you knowledge. My friends moved out of Los Altos and bought in Boise. I wish I bought then.
Hi, would you be willing some concrete names of the RE private equity funds you invested in? Thank you!
Love this article! Flying out to Cleveland to look at some promising multi family units. Is there a reason why Cleveland Ohio, did not make it on list?
I was wondering about Cleveland too. Unfortunately, Cleveland didn’t rank high enough in migration to make the list (#43). Let me know how your visit goes!
Being cheap isn’t good enough to make my Top States list.
This analysis talks about the real estate itself. I am going to assume that you are renting the properties. Who are the renters? Are they the folks that are migrating? Asking because they could be moving back in with parents or some other use case I haven’t thought of.
There’s always demand from renters because there is always demand for shelter. The renter pool can certainly come from people first coming to the new city and trying before buying.
This might be controversial but what I always find interesting about it all is that as a brown person/ immigrant, living in those top states were rent is cheap is horrible and I’m sure many of the residents from those states are not going to be friendly towards people of color.
True. It’s not as easy to feel comfortable moving around the country as a minority. Hence why you don’t have to move to the cheap states to profit. You can live where you feel more comfortable and invest in those cheap states through a real estate marketplace.
Absolute nonsense. So long as you are law abiding, freedom loving and hard working you are welcome.
Excellent Sarkis…
Demographics are destiny, don’t know why it’s so verboten to acknowledge that.
Inaccurate.
Living in TN. This post feels pretty spot-on.
Property is so cheap here, especially compared to average salary. My wife and I are bringing in ~$110k, and a 3br, 2ba house here ranges from $150-250k. We’re currently renting (for flexibility at the moment), and we’re paying ~135% what the mortgage payment would be on the house we live in.
What is stopping you from buying? Your income to home price ratio is huge.
SAM, love your website. Please write an article for those of us who bought in states with a migration out — NJ, CT, NY. In 4 yrs my son will be out of high school and we will move out of NJ, but I wonder how much I will lose on the house I bought in 2017.
We own a place in NC that has doubled since we bought in 2011, but it’s a smaller, cheaper property. Sigh.
Don’t know the future of NJ real estate in 4 years. Enjoy your home in the meantime.
Unfortunately, 2017 was not the best time to buy.
Thanks for the reply. Yes on 2017 in retrospect, especially with the tax changes. For the family though it was the right time. It was the entry into middle school (6th grade) in a strong public school system. We are happy we left Manhattan when we did. I didn’t realize it until afterwards, but city life isn’t great for kids, boys especially. Our son loves NJ (!) and having a house and walking to school and town. He checked nyc off his bucket list early.
I mention this b/c of an older article you wrote on schooling for your children. At some point they start becoming people in their own right and (for me) it kind of surprised me how abrupt that switch is.
Gotcha. Glad the lifestyle is much better. NYC can be tough for sure.
I would just enjoy your home. That’s it’s main purpose. No need to think about selling until 6 months before you really want to sell.
Sam,
Curious to hear your take on the remote opportunities for someone that is not in the “tech sector”?
I have a more traditional background – 7 years in commercial banking and now 6 years running a manufacturing business.
The wife and I are considering relocating to a smaller town since our kids are about to reach school age. We want to have more connection to the community, smaller schools, etc.
Main issue is that I am having trouble finding good solid senior level job opportunities in this smaller town.
Remote is something that is intriguing, but unsure how to attack that or what the opportunities look like.
Appreciate your thoughts on this.
Tough to move if you don’t have that job that pays. Best to stay and move only after finding that job.
As an investor, it’s different. You don’t have to move. You should invest where the potential is greatest for growth.
I agree with your analysis and wonder if you have any insight in the following 2 points:
A) In an expensive area you invest 1M and you have one tenant to deal with. In many of the preferred areas you list you invest 1M and you have 5 separate tenants, contracts and maintenance to deal with. That is a lot more work and to me in part dilutes the attractiveness of the higher cap ratios. You can contract some of that work out (but not all) and that then also eats into the cap ratios.
B) “Because the future of work is remote,..”
That’s what it seemed like all the way back 20 years ago. Yet high tech has had a definitive tendency to centralize rather than decentralize? Which force wins? So far centralization is winning. I’m wondering, why do you think that is? And, perhaps more important for investments, will it continue?
I invest with a real estate sponsor who manages all the work. Hence, the real estate investment is passive.
Do you no think the internet hasn’t come a long way since 2000? If not, why do you think that is?
HB isn’t commenting on the growth of the internet he’s commenting on the consolidation of superordinate workers by geographic region (E.g. tech, law, banking etc, in Boston, Bay Area, Seattle, New York, Washington DC). For many of these workers they have to be close to work.
I happen to think there’s room for both models when it comes to investing in real estate. Sure pricey cities with big populations of elitetly paid workers will continue to see real estate values rise (if not as quickly) because people have to live there for work. AND prices in the locations you’d id’d will too (more rapidly perhaps) because the nature of a lot of work has changed. For investment, rather than deciding where to reside, you of course want to be aware of total return, the premise of your post.
I want to second what Brian said about Charleston, I moved to the area as an early retiree and have constantly been looking at real estate. Its an odd market compared to the rest of the State – it shares a lot of the price activity that you quoted about coastal cities from New England retirees and anything on the upper end peaked in 2019. However, it also has incredible population and employment trends as people figure out it has good weather, a great airport, and strong jobs thanks to the port. Now the question is do I want to bet on price speculation?
The drags on monthly cash flow are real – Property taxes if its a rental plus homeowners and potentially flood insurance since the entire area is low.
I appreciate the article though, it gives me a decent outlook on appreciation from the point of view of someone who’s made good money in that path.
If I was living in Charleston, and planned to stay, I would definitely be buying at least a primary residence there.
Love the analysis. By the way, TN has no state income tax. It’s sales tax is higher (as high as 9.75%). It has a tax on dividends however that is phasing out completely (was 3% and after 2021 will be gone completely).
TN property tax is also a bit on the high side. Shelby county + Memphis city tax is excessive. Other areas of TN are much more reasonable.
I’m a real estate broker who also manages property for individual investors in TN. I’m 45 min south of metro Nashville. The area is exploding w lots of renters being priced out of Nashville and are moving south to rent.
Good to know. Thanks.
I have a house for rent in Ashburn, NOVA area. Bought it for $390k, rent it for $2.3k. Between becoming landlord, invest in VTSAX, and invest in Fundrise, which one is better route for long term investment. Currently I have another $300k in cash and still decide whether bought another rental or invest in VTSAX. Big fan of yours
Not sure, b/c I don’t know your risk tolerance, net worth, etc. But that rent is great for the cost of the house!
i live in ashburn too, property here is up 50-100k in the past 5 years and the area is attracting top talent. did you see redfin rated willowsford #1 community in the country? the builders are making all the money leaving the inflated homes to us….but with that being said, if you can get a TH for 400k put 100k down and positive cash flow why not? house will be paid off in 30 years. the stock market is way overvalued imho…..i had a condo rental in reston near the metro recently sold it bc the HOA dues were eating all my cash flows. I prefer TH and SFH.
Yay, I made your top 2! It is a fabulous market. I love the city and the real estate. Incredible little house worth 285k all day. Paid 225k 2.5 years ago.
Making 110k per year with pension, match, and benefits. Totally debit free. Looking at a great new job that pays 50% more but have to travel a ton. I’m single with a steady gf. Kids are in college. Can’t decide.
North Carolinian here … Trust me, you don’t want to invest here!!! I have enough trouble finding deals.
Last year we were seeing a lot of foreign investment buying up all property classes. SFH market still has a fair amount of hedge fund / Reit ownership, although the $’s aren’t flowing in at the same rate.
I’m doing a 1031 this spring, and it’s difficult to find a replacement property that makes sense.
I’ll concur with the other reader about SC. The way property taxes work, if you don’t get the Homestead Exemption (primary residence) then tax rates really jump. Property tax could be 3x more for an investment property.
I wonder if it’s just a relative investment call. Investors from places like SF and NYC see North Carolina as still good value. But to locals, the valuations are not good.
But capital may overwhelm and drive up prices farther than what locals feel is reasonable value, just like how it has in places like SF etc.
Bay Area CA here originally from NY, I purchased an investment property in the Raleigh area and have been pleased so far. Good median income, mild climate, decently sized airport, reasonable property taxes. I looked at fixer uppers for months before deciding to buy new construction to hold for the long term, I paid $299k with some customizations and it rented very quickly for $1950/mo. About $25k appreciation in two years. I’d also considered Seattle and Austin (higher capital investment) as well as Orlando and central/western NY (better cash flow but with tax/insurance and weather headaches in both areas). I’m eyeing TN now for my next property, good to see this info!
I agree with statements in regards to Charleston, SC region. Property taxes for rental properties in Berkeley or Charleston county are over 3X the taxes of a primary resident. I’m not sure how the rest of that state is but on the coastal cities the data is about 2-3 years behind of the area being a lucrative investment.
Former Vermonster here, grew up near Burlington until I left for college in 2004 and still have family there. I was surprised to see Vermont at the top of the list for inbound migration as well, especially since the state started offering $10,000 last year to people willing to move there and work remotely for an out of state employer.
The incentive was put in place though to help relieve the shrinking tax base due to an aging population. Given the demographics, I suspect many of the incoming residents are wealthier Baby Boomers settling down for retirement. The winters are cold but the skiing is great and Vermont has one of the highest craft breweries per capita (gotta stay warm somehow!). Not a bad lifestyle if you are still active enough to enjoy it!
What’s the best way to get started on direct RE investing? Are there property managers who can help look for properties?
I’m not a fan of syndication due to lack of full tax benefits (no 1031 out), too many fees and middlemen
Once you build your investable net worth to $1 million+, You will naturally be able to network with more people and receive more direct real estate investment opportunities, that is if you trust the person and have the time.
But don’t be fooled, even with over $1 million in investable assets, you still have to pay fees. There is no free lunch, if that’s what you were thinking. People need to make a living too.
The whole purpose of real estate syndication is to help bring access to those who have less money. How much and investable assets do you have?
You actually can 1031 out of a Syndication it’s just not easy.
Best statement: It’s important to read Financial Samurai or other personal finance sites that write from first-hand experience because you can usually get a better sense of what’s going on in real-time. With better information comes potentially better investment decisions.
Sam, any good websites you would recommend to learn more on syndicate real estate investing? I would like to be part of an investment group that analyzes potential real estate syndicates.
Biggerpockets is a fantastic resource for all aspects of RE investing, it has a specific forum solely for syndication
South Carolina appears great but it’s been a difficult for us to consistently cash flow. We live in Idaho and have a rental property in Charleston, SC purchased in 2006. House is worth $210,000 but property taxes are $4500 per year for a non resident. Also insurance is on the higher end around $1500 cause hurricanes. The property market there (Charleston) is definitely heating up in the last year or so and we are planning on selling this spring. I do appreciate you posting these types of articles as they are very informative.
It’s good you mention Charleston, SC because the team at CrowdStreet ranks Charleston as their #1 18-hour city for real estate investing. I talked to them at length about their picks and will write a follow up post.
Perhaps you should hold on and let things ride. I foresee a scenario where once a city builds up momentum, it’s hard to stop. Capital starts flowing in and it becomes a self-fulfilling prophecy.
Just look at what’s going on with Austin over the past 10 years. Austin is hot now and should build positive network effects with more people going over there, more companies starting, etc.
South Carolina numbers may seem attractive at the surface level, but you have consider the low income piece here. It really depends on what is being classified a home for the pricing. There are many mobile, manufactured, and slab homes that are likely skewing the pricing. I have lived in SC for about 1.5 years and never seen so many mobile homes or junk outside of living in western NC. The eastern part of both states have some of these same characteristics. The 187k pretty much buys something you either will have trouble selling, renting or it is some place not near anywhere that would pay you the ~51-54K income these charts describe. Charlotte Metro and Research Triangle Park (RTP) areas are the only areas I would feel safe buying in the Carolinas.
The incomes for the Carolinas and Tenn are both low, due to the many of the more rural areas influencing what businesses base their comp structures on (and these numbers). The lower housing and income numbers are misleading for these three states.
You make good points. The thing is, the median price always for any state or city always seems a tad low for a decent home you actually are OK buying.
If you add 25% – 50% to the median home price, that’s where people start envision what a middle class home is like.
With my analysis, we have a baseline for calculating valuation. We can then move into specific cities.
Spot on. Trust me there are not many family homes in decent neighborhoods for 302k in parts of Nevada (las Vegas). Take the median and add 1-200k.
Thanks for the analysis Sam, great work. I concur with your assessment and have earmarked my RE money to private RE deals targeted to non-coast markets…some very attractive options for accredited investors through various banks including through me
I personally live in the NYC area and can’t get myself to buy in the burbs…some of the most affluent NYC neighboring towns have experienced a lost decade or 2 for the average homeowner…Zillow won’t adequately tell the story. My wife and I have been to countless open houses recently where they are asking less than what they paid a decade ago and in some cases back to 2000ish in the case of Greenwich. I really feel horrible for these folks.
I am flushed with liquid assets and would love to buy as we are currently renting….I just can’t get myself to move forward…really crazy to see such carnage with a backdrop consisting of a healthy national housing market, cratering rates and a strong economy. I imagine things will get worse before there is ever a bottom as there seems to be way more sellers than buyers…the demographics likely will continue to deteriorate. I have no idea what to do.
I’ve heard about how crappy the CT and Greenwich real estate market are for 20 years. What the heck happened? With so much wealth in the NYC area, it goes to show that there’s not necessarily a positive knock on effect.
Florida is getting all the New Yorkers! Sunshine and low taxes are hard to beat.
Now Vermont…. what is going on.
but when you move to Florida please dont vote for the same type of politicians that ruined the state !!!! If you catch my drift
Really interesting analysis, and very thought provoking. I do have some input on Vermont you might find interesting. Vermont insurance laws are aggressive and many large companies have insurance companies licensed in Vermont. The insurance is related to the captive insurance market. The people needed to run and audit these companies are highly compensated employees (Actuaries, Auditor, Lawyers, etc.). The people who help us run our captive are all based in Vermont, and I can tell you they are very well paid based on the bills I have seen from them. I still agree the winters are miserable, and not a place I would live.
Also when looking at SALT don’t forget state income tax rate. Arkansas has ridiculously low property taxes, the max state tax rate is 6.9% starting at $35.1K. Many middle income people in Arkansas hit the 10K max. especially dual incomes.
Fascinating tidbit on Vermont! Had no idea. I do wonder if people moving there will be disappointed after a year or two and then move back south somewhere. Vermont is still a head scratcher for me. But you can’t refute the data!
For sure on the state income tax rates. I’ve been mainly focused on the seven no income tax states and then the states with the highest income tax rates.
Arkansas doesn’t seem very popular.
It’s pretty niche but hearing more about the captive insurance would be awesome.
List of states to invest looks pretty consistent with my views except South Dakota. The weather and job prospects are iffy. Maybe the shale boom in ND helps it in some form?
what are your thoughts about virginia, especially northern va because if the technology aspect? you used to live in northern VA before going to William & Mary. I’m just curious to hear your thoughts, Sam, on why or why not Virginia would be a good state in which to invest. Yes, I do realize that Northern VA is totally different than Southwest VA, or even the Williamsburg area. But, as I said, I’m just curious to hear your opinion.
Originally, I bucketed Northern Virginia with Washington, DC, pretty good growth but a little pricey. But upon looking at the numbers, NOVA looks more attractive.
Fairfax, VA median home price is $577,000.
Median Household Income In NOVA
Arlington County, Virginia ($122,394)
Fairfax County, Virginia ($122,227)
Loudoun County ($139,915)
Therefore, the valuation is closer to 4.6X. Much better than Washington, DC’s valuation. However, not as cheap as 3.7X, the average valuation for my top 5.
I’m personally looking for the best value possible coming from one of the most expensive states.
What do you think about NOVA?
Sam, I live in McLean, your hometown! NOVA market is very competitive, because it not only has a booming economy, but also one of the best public school systems in the country. Its weakness is the commute – the public transport is not very reliable, and the rush hour traffic is awful. It’s still very suburban, not really walkable so less appealing to Millennials who got used to car-free life. Last year the market was a bit slow for houses above 1.1mn due to affordability issues. But since this new year, anything below 1.25mn in Mclean/Tysons area is sold within a week… Very hard to find a bargain now… Do you think one should hold and wait for the next slowdown or rush to get something before it shoot even higher again?
I believe 1H2020 is going to be a bull market in house with rates down and people getting rich off their stock investments. There will he rotation into RE.
I’d just be afraid to get caught up in a bidding war bc summers always slow down and 4Q for two years in a row have been weak.
Depends how on your finances and how long you plan to own!
That makes a lot of sense! I currently own a townhouse, thinking of upscaling to a single family house and rent out the current one. After reading your articles, I think the best strategy is to refinance the townhouse now, and wait for opportunities for upscale in a slower time.
Really look forward to your analysis on NOVA RE market!!
Good job!
Refinance before purchasing a new SFH for sure!
Now is as good a time as any with the 10-year yield at 1.5%.
https://www.financialsamurai.com/real-estate-crowdfunding-learning-center/
Texas has no state income tax but it has very high property taxes. Property taxes in DFW metro are all between 2-3%!
True, the property tax rate is high. But $220,000 for a median-priced home in Dallas is so cheap. 2-3% is only $4,400 – $6,600. Below the SALT cap too.
Incredibly fascinating data and analysis Sam! Your level of knowledge and interpretation blow my mind. Great insights thanks! I know a couple people who moved to NC and visited there several times myself. Sounds like a great inclusion in your top 5 list. I don’t know much at all about the other states am curious now to see how they pan out. I wouldn’t have guessed Vermont would be up there on the relocation data. I’ve heard it’s beautiful there but I couldn’t take the cold winters!