Where to buy real estate? This is a question that many people entering as new investors (or even seasoned ones) ask. There is no simple answer, but I will provide some ideas on how to choose an area to purchase your first or 50th property in.
First, determine what you’re looking for from your real estate. If you’re buying to live in the home, obviously you’ll have many criteria that are specifically important to you and will choose your cities accordingly. If you’re buying the property as an investment, there are 2 basic benefits people look for in property: Appreciation, and Cashflow.
Buying property only for appreciation can be risky. In this case, the US Census Bureau (www.census.gov) will be your biggest help…finding which cities have grown the most year after year is the easiest way to guess which ones will continue to grow. However, it’s still only a guess, and usually those cities are heavily built on or about to be…which means that real estate there may not be as valuable as you think. This can mean its easier to find good deals in those cities…Las Vegas, Nevada and significant portions of Florida, California, and Arizona right now have been heavily overbuilt, meaning that foreclosures, short sales, and similar deals can easily be found there.
Buying property for cashflow is a much more secure option. This means you’re looking for property in areas with low vacancy rates (again, the census bureau can help). I personally prefer college towns, as this ensures a large number of new renters are entering the area every year. Because I prefer to manage my own properties (something I do recommend to new investors rather than turning it over to someone else), I look for property close by to where I live. If you don’t live in a college town or other low vacancy area, try to find something within 30 minutes of your home so that you can easily get onsite if needed. Also, and this is no small factor, living in your investment property (for example buying a duplex, living in half and renting half) looks much more favorable to banks thinking about giving you a loan. Appreciation will still come to a cashflow producing property, but because you can rent the property and make money in the meantime, you’re not dependent on appreciation and can survive in down markets, like the one we’re in right now.
In summary, the 3 main factors that will influence what cities are the best to buy real estate in are: Appreciation, cashflow, and your style of property management. Decide for yourself how important each of these factors are, and you’ve taken a major step toward finding the right city (or cities) for you.
Benjamin J. Miller
