best real estate markets with biggest returns

Best Real Estate Markets with Biggest Returns

Here is an incredible article by Prashant Gopal of Business Week. The information

is incredible, I created a table of the data below but by all means read the write up

on each city. It is not a surprise to see some of the less hyped markets in the

Midwest like Cleveland, Columbus, Cincinnati and Indy very high on this list. Also

Detroit is not a surprise, like the 4 markets above savvy investors will clean up.

There is a lot more to consider such as Vacancy, Unemployment, Competition and

Availability of Deals when choosing a market to invest. It never hurts to have high

returns. I have done a ton of research on where to invest and 4 of my favorite

markets are on here based on the criteria above. Those are Cleveland, Columbus,

Cincinnati, and Indy.

City Rank Price/rent ratio Median unit $ Median rent Vacancy

Dallas-Fort Worth, TX 1 3.76 $30,000 $720 7.60%

Cleveland, OH 2 3.94 $31,000 $701 6.40%

Detroit, MI 3 4 $34,000 $765 7.40%

Cincinnati, OH 4 4.15 $34,000 $671 7.30%

Houston, TX 5 4.52 $35,000 $718 10.10%

Charlotte, NC 6 4.85 $38,000 $714 8.50%

Jacksonville, Fla. 7 5.17 $41,000 $757 12.70%

Kansas City, Mo. 8 5.19 $37,500 $656 8.20%

Columbus, Ohio 9 5.43 $38,000 $636 8.30%

St. Louis 10 5.43 $41,000 $685 8.20%

http://images.businessweek.com/ss/09/04/0421_realestate_investments/index.htm

Minneapolis 11 5.43 $56,000 $901 4.70%

Philadelphia 12 5.49 $61,000 $986 6.10%

Milwaukee 13 5.68 $52,000 $797 4.30%

Boston 14 6.12 $113,000 $1,644 6.40%

Indianapolis 15 6.15 $43,000 $635 8.20%

Orlando 16 6.4 $57,000 $824 9.90%

Chicago 17 6.52 $73,000 $992 6.00% Tampa-St. Petersburg 18 6.56 $57,000 $798 9.30%

Washington 19 6.57 $97,000 $1,306 5.90%

Fort Lauderdale 20 6.74 $78,000 $1,038 7.10%

Where to Get the Most Rental Income for

the Least Investment

Investing in rentals is increasingly affordable. Purchases made now will reap handsome rewards when the economy rebounds

By Prashant Gopal

View Slide Show

Few people these days have confidence in the real estate market. Sellers are anxious,

buyers are cautious, and prices across the nation are tumbling, month after month. But for

a careful investor, fear and uncertainty can set the stage for opportunity.

Lower purchase prices and interest rates are making it easier—even for an individual

investor—to find a single-family home, condo, or a small apartment building that brings

in more than enough rent to cover mortgage, taxes, insurance, maintenance, and other

expenses. And with so many properties lingering on the market, buyers can have their

pick.

http://www.businessweek.com/bios/Prashant_Gopal.htm


http://bx.businessweek.com/housing-market/

Of course, purchasing a rental property right now comes with a fair amount of risk,

beyond the fact that property values are falling. Rents are also dropping, and vacancies

are rising as layoffs across the country are becoming increasingly common. The pool of

renters generally shrinks when unemployment worsens because renters tend to find

roommates, or move in with friends and family.

Looking Toward 2011-15

"Even though we know rents will decline in most markets in 2009 and 2010, beyond that

there will be a shortage of new supply [of apartments] coming," said Hessam Nadji,

managing director of research at Marcus & Millichap, an Encino, Calif.-based

commercial real estate investment brokerage firm. "And the rebound in demand, because

of an improving economy, could spell healthy growth from 2011 through 2015."

BusinessWeek asked Marcus & Millichap to come up with a ranking of the markets where

apartments provide the most rental income for the least amount of investment. These are

metro areas that, for the most part, are affordable for folks who don't have millions to

invest. Single-family homes and condos in some of these markets can sell for less than

$100,000 and a 20-unit apartment building can be purchased for less than $700,000.

Topping the list was Dallas-Fort Worth, where apartment buildings sell for an average of

$30,000 a unit and every $3.76 of investment (in terms of the sales price) produces $1 of

rental income. By comparison, investors need to spend about $8.19 on average

nationwide for $1 of rental income.

Other low-priced markets that ranked high were Cincinnati, Cleveland, Columbus,

Detroit, Houston, and Kansas City. Many of these metros—like high-dividend stocks—

come with the risk that both the income and the value of the property could fall off.

Dallas' job market is weakening, and many new apartments are under construction, which

will create more competition for landlords. Fort Lauderdale, Jacksonville, Orlando, and

Tampa, which also made the list, have plenty of bargains, but you'd be competing for

tenants with condo owners who are renting homes they cannot sell. And the

manufacturing-heavy Midwest is in serious economic decline.

Capital Appreciation

But some major markets made the list: Boston, Chicago, Philadelphia, and Washington.

These are markets that have a record of strong rent growth and appreciation. The District

of Columbia, in particular, with its federal government and defense contractor jobs, could

provide good opportunities, Nadji and other analysts said.

In the Boston metro area, investors are picking up low-priced foreclosures outside the

city in towns like Attleboro, Framingham, and Marlborough, said Nancy McCreary,

manager of the rental group at Hammond Residential Real Estate in Chestnut Hill. But

prices are still too high for properties in the more upscale Boston-area neighborhoods for

the rental equation to work, she said.

http://bx.businessweek.com/massachusetts-real-estate/

But investors have been finding good income-producing properties geared to the area's

many college students—a factor that also applies to other big university towns such as

Columbus, Jacksonville, Houston, and Orlando. One investor, for example, is buying a

760-square-foot one-bedroom unit with four rooms for $222,000 in Boston's Brighton

neighborhood, near Boston College and Boston University.

The condo fee is $465 a month, and the taxes are $150 a month. The buyer is hoping to

rent it out for $1,600, which should cover the costs, McCreary said.

Prices have fallen enough that it has become somewhat easier to find condos in nice

urban areas that make sense as rentals, she said. "A year or two ago, it was really

impossible because the rental market was going down, and the sales market was

skyrocketing," McCreary said. "The two are coming together a little bit now."

Motown Bargains

It's much easier to make the rental equation work in Detroit, where the economy along

with the auto industry is in terrible shape. Median prices dropped more than 50% from a

year earlier, to $42,500, but sales rose by nearly a third as cash-ready bargain hunters

jumped in. In the city itself, the median price has fallen to $5,800—much less than it

costs to buy a new car produced in the Motor City.

Out-of-town investors are coming in to take advantage of the low prices. Jeremy Burgess,

a former baker at a Safeway supermarket, and his partners have made a business of

finding investments for buyers who don't know the ins and outs of the risky market.

Burgess, manager of Urban Detroit Wholesalers, said he has found about 100 houses for

investors, who mostly are from outside the state. He says the company looks for three-

bedroom apartments that cost about $30,000 including all rehab costs. A cash buyer can

make at least $200 a month after all the costs, including property management fees,

Burgess figures.

"The good thing is it's a low buy-in," said Burgess, who acknowledges that the Detroit

market has risks. "Not everybody has the attitude to do this: You have to have a

pioneering spirit."

But Ron Johnsey, president of Axiometrics, a Dallas apartment research firm, said the

problem with markets like Detroit is that it's not easy to see how or when a recovery

might occur. And it's difficult to find a good exit strategy, because it might not be easy in

a few years to find a buyer, he added.

A Coming Shortage

Johnsey says that it will pay to wait a year or more before investing in any market. Rising

unemployment will cause rents to drop and vacancies to rise at least through the end of

2010, he said.

But when the job market recovers, the upside for investors will be huge, Johnsey said.

New construction of apartments and single-family houses have slowed so dramatically in

many places that there will be a shortage of properties in a few years, he said. And

demand will increase as many unemployed Americans in their 20s and 30s suddenly will

be searching for their own digs, he said.

"There are some great buys out there in the apartment market," Johnsey said. "But not as

many as there will be coming down the pike. We're just at the tip of the iceberg."

Nadji agrees that things will get worse before they get better. But he said it's impossible

to time the bottom and it makes sense to get in before interest rates rise and big

institutional investors jump in and drive up prices.

"Once there's a little more confidence in the economy, with this strategy of waiting, you

might miss an opportunity," Nadji said.

Click here to see the 20 U.S. real estate markets that offer the best rental returns for

investors looking to get into the rental property business.

Best Real Estate Markets with Biggest

Returns

By Prashant Gopal

Historic Opportunities

Prices for homes and apartment buildings are falling all across the country. If you are

looking for a solid investment, this is a great time to buy a rental property. Interest rates

are low, property prices have dropped, and when the job market recovers, both rents and

apartment prices are likely to see big increases. BusinessWeek worked with Encino

(Calif.)-based commercial real estate investment brokerage firm Marcus & Millichap to

come up with large metro areas that provide the most rental income for the money

invested. For the most part, these were relatively inexpensive markets such as Dallas-Fort

Worth, which came in No. 1. But large metros, such as Boston, Washington, and

Chicago, where apartment prices have been falling over the past year, also placed highly.

To see other areas where rental income is strong, read on.





Returns

Dallas-Fort Worth

Rank: 1

Price/rent ratio: 3.76*

Median per unit sales price: $30,000

Median rent: $720/month

Vacancy: 7.6%

Pros: Investors in the Dallas metro market can earn the highest rental income for the least

amount of investment.

Cons: Dallas-Fort Worth has a tendency to have large waves of apartment construction,

which can rapidly increase competition and push up the vacancy rate.

*The ratio represents how many dollars of investment will generate $1 of rental income.

The lower the ratio, the cheaper the apartments are in terms the rental revenue. The

national price/rent average is 8.19.




Returns

Cleveland

Rank: 2

Price/rent ratio: 3.94

Median sales price: $31,000

Median rent: $701

Vacancy: 6.4%

Pros: Solid rental income for cost of investment.

Cons: Rising unemployment and generally weakening economy.




Returns

Detroit

Rank: 3



Median rent: $765

Vacancy: 7.4%

Pros: People are staying in apartments because the foreclosure-heavy for-sale home

market is increasingly risky.

Cons: The economy, heavily dependent on the automobile industry, is crumbling as

unemployment spikes.




Returns

Cincinnati

Rank: 4



Median rent: $671

Vacancy: 7.3%

Pros: Steady market with a limited supply of new apartment construction.

Cons: Job losses, particularly in manufacturing and trade/transportation/utilities sectors

will curtail apartment demand over the next year.




Returns

Houston

Rank: 5


Median sales price: $35,000Median rent: $718

Vacancy: 10.1%

Pros: Strong employment growth over past decade; many major corporations

headquartered here.

Cons: Dependent on oil market, which has weakened. Relatively high vacancy rate




Returns

Charlotte

Rank: 6



Median rent: $714

Vacancy: 8.5%

Pros: Several years of steady economic strength, rent growth, and relatively low

vacancies—plus it's a major college town. The market could do well in the long term.

Cons: The local economy of this banking hub has suffered greatly since the financial

crisis began. Layoffs and unemployment are on the rise.




Returns

Jacksonville, Fla.

Rank: 7



Median rent: $757

Vacancy: 12.7%

Pros: The city continues to attract retirees, and the job market benefits from the

development of the nearby naval station. The area is also home to several universities,

including Jacksonville University.

Cons: The financial sector has been hit hard in recent months and values of apartment

buildings have been declining as vacancies climb.




Returns

Kansas City, Mo.

Rank: 8



Median rent: $656

Vacancy: 8.2%

Pros: New apartment construction has been limited, which has kept supply in check.

Cons: Job losses have been rising along with apartment vacancies.




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Columbus, Ohio

Rank: 9



Median rent:$636

Vacancy: 8.3%

Pros: Columbus is home to Ohio State University, the nation's largest campus. The

college creates a steady flow of tenants.

Cons: The local economy is weakening and risks for landlords are increasing outside the

student zone.




Returns

St. Louis

Rank: 10



Median rent: $685

Vacancy: 8.2%

Pros: New construction of apartments is limited.

Cons: Unemployment is increasing. More than a thousand layoffs were announced as a

result of the recent takeover of Anheuser-Busch by Belgium-based InBev.




Returns

Minneapolis

Rank: 11



Median rent: $901

Vacancy: 4.7%

Pros: The city is home to the University of Minnesota—a steady source for tenants. The

metro has good long-term prospects because of its diverse employment base.

Cons: Home of Target and many financial companies, the city is seeing its economy

soften.




Returns

Philadelphia

Rank: 12



Median rent: $986

Vacancy: 6.1%

Pros: The city has a relatively stable economy with many universities and hospitals. It is

also the sixth-largest city in the U.S. with the fourth-highest gross domestic product.

Cons: There have been some job losses, particularly in manufacturing and

professional/business services sectors. Vacancies have increased and this trend is

expected to continue throughout the year.




Returns

Milwaukee

Rank: 13



Median rent: $797

Vacancy: 4.3%

Pros: There is a limited amount of new construction and vacancies are low.

Cons: Significant job losses this year could reduce demand for apartments.




Returns

Boston

Rank: 14



Median rent: $1,644

Vacancy: 6.4%

Pros: A major real estate market with many universities and strong rental income.

Cons: The city has had job losses, especially in the financial services sector.




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Indianapolis

Rank: 15



Median rent: $635

Vacancy: 8.2%

Pros: Stable apartment prices and relatively strong job market.

Cons: New apartment construction has accelerated.




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Orlando

Rank: 16



Median rent: $824

Vacancy: 9.9%

Pros: Growing population and good long-term demographic trends.

Cons: The hospitality industry has been hit hard and Disney World has been laying off.

Owners of unsold condos have been competing with traditional apartments for tenants.




Returns

Chicago

Rank: 17



Median rent: $992

Vacancy: 6.0%

Pros: The Chicago area has seen steady long-term rent growth and provides good rental

income for a large market.

Cons: The Chicago financial industry has suffered job losses. New construction of

apartments has continued.




Returns

Tampa-St. Petersburg

Rank: 18



Median rent: $798

Vacancy: 9.3%

Pros: New construction of apartments has slowed.

Cons: Weakened job market. Condo owners who are unable to sell homes are competing

with apartment owners for tenants.




Returns

Washington

Rank: 19



Median rent: $1,306

Vacancy: 5.9%

Pros: D.C. is one of the nation's few economic bright spots because of its federal

government and defense contractor jobs. Apartment building values are holding steady.

Cons: The northern Virginia suburbs, which have an oversupply of apartments, are

getting hit harder than the urban core as vacancies rise and unemployment grows




Returns

Fort Lauderdale

Rank: 20



Median rent: $1,038

Vacancy: 7.1%

Pros: Vacancies are relatively low; the location will continue to attract retirees and others

who enjoy the warm climate and the beach.

Cons: Job losses, unsold homes competing for tenants with apartment buildings, condos

being converted into rentals.



best real estate markets with biggest returns

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