Deepak Malhotra, Investor & Landlord, Cheney WA,  99004

In which city should I buy real estate?


The United States is one of most affordable countries in the world right now in which to buy real estate.  You don’t have to believe me, take a look at this and sort by affordability or by mortgage percentage of income:  http://www.numbeo.com/property-investment/rankings_by_country.jsp

Assuming you have decided to invest in the U.S., the next question becomes where in the U.S.  Because values are low all over the country, you could just buy in your hometown.  The advantage of buying locally is that you can drive by the property and make sure it is being maintained.  You also know the areas, the contractors, and the property managers.  If you are more adventurous, and are looking for cities that might have higher rental yield or cap rate than you have locally (e.g., if you live in low yield places like California or New York City), the best data can be found in Local Market Monitor , or Ken Wade’s excellent HousingAlerts website.

Numbeo gives you a rough idea for free.

https://www.numbeo.com/property-investment/gmaps.jsp?indexToShow=getGrossRentalYieldOutsideOfCentre

Affordability is also a good indicator of value.

https://www.numbeo.com/property-investment/gmaps.jsp?indexToShow=getAffordabilityIndex

Numbeo’s data  is crowdsourced and I am not convinced it is perfectly accurate, but it will give you some ideas.  Of course, yield isn’t the only issue.  You will always find higher yield for turn of the century properties in declining cities and declining neighborhoods.  If we were only looking at yield numbers, we would all be buying in the worst areas of Detroit.

Of course, buying in a bad neighborhood is not a good idea.  I heard a story of a guy who tried to buy and fix up cheap houses in Detroit but every time he had supplies delivered, they got stolen.  There is an even bigger risk after you have tenants move in–if they get robbed or worse, you could have liability for providing inadequate security.  Also, many insurance companies will drop you after one claim.  Also, cities with declining populations often have declining real estate values.  A declining population will surely mean a long term loss in value or at least less appreciation than higher growth cities.

Also, we be aware that some states are far more hostile to landlords than others (looking at you California).  Places that have rent control or where it is hard to evict are not good places to invest.  Places with no state income tax may be preferable to states that have income tax and capital gains tax.  Some states, like Hawaii, have additional taxes on short term rentals.

Finding high growth cities from a heat map is just a matter of common sense (there is more growth in the sunbelt, south, and west than in the industrial northeast) or you can perform a search for high growth cities.

To find high growth, you can look at the census but that is old news.

Anyway, an internet search will find all sorts of similar lists for you.  Include the current year in your search to try to get more recent data.

So from that numbeo map, I might be looking in the higher yield locations in Texas, which has no state income tax. Beware of flood zones, of course, as flood insurance is now subsidized and may not always be.