As a landlord, enterepreneur, and real estate investor since 2000, for 10 years, there has been a significant evolution in the real estate investment industry. Given the current financial climate of 2009 and likely the next few years, many real estate investors are following the US trend of a more conservative approach to investing. People are now focused on less on speculative plays and more on real estate investments that actually pencil from the cash flow perspective. People can no longer secure investments with no money down strategies which will rise to inconceivable heights.
I am seeing a return to safety particularily in emerging markets within the US. These markets have been safehavens, typically out of the spotlight, in less exciting areas than coastal markets. These markets include areas within the South and Midwest which didn’t see massive price appreciate during the economic boom and therefore have fallen less, and are quickest to recover. This includes cities like Indianapolis, Birmingham, Charlotte, Memphis, Dallas, Kansas City, and others in this geographic south and central area of the US. Many of thes cities are highly affordable for buyers, have low price to rent ratios allowing real estate investors to easily enter these markets at affordable price points and receive good cash on cash returns, providing them a safe alternative to other investments. These markets felt the current economic downturn and many of them overcorrected on price. Economic principles have proven that markets which overcorrect don’t require job growth to see price appreciation. This is being overlooked by many investors who are looking only at unemployment levels.
I’ve been quietly building my portfolio with properties in areas like these as rents have been holding steady and prices are well below market levels due to high foreclosure rates. While these emerging cities are less glamorous than traditional investment markets like California, Arizona, and Florida, these areas are relatively stable and have solid long term growth prospects.
Upon choosing a market, a new investor will need to identify which properties within those markets are offering the best opportunities. My suggestion? Focus on quality. Quality deals are available in these markets at ridicoulously low prices. I’m focusing primarily on 3 bedroom, 2 bathroom homes, preferably with car storage. Also a new investor should zero in on areas which solid employment numbers within the cities. These areas will have less vacancy and lower crime rates. A quick way to evaluate neighborhoods are ones which have big box retailers near them. If Home Depot, Lowes, and Target have determined these are good areas to put stores, then you can piggy-back off their due-diligence.
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