Markets to Avoid
You probably already had an inkling this was true, but not all types of real estate markets are good for investing. Here are examples of some to avoid:
- Old industrial cities
- Anti-landlord cities
- “Company towns”
In general, it's best to avoid markets in industrial areas, like the Rust Belt. They're outdated property opportunities, and no longer an optimal investment. It's also important to avoid areas where the law tends to be anti-landlord. California and New York are good examples. Such areas make it difficult to evict a problem tenant.
California, for instance, has what's called the “People's Republic” of Santa Monica and San Francisco. In these places, if a tenant knows how to, as Jason Hartman phrases it, “play the game,” they can stay in your property forever. It becomes far too difficult to kick them out. In Texas, on the other hand, you can kick a tenant out after a month if something goes wrong. Not in California. It could take up to six months or a year to kick a tenant out if they decide to take advantage of the system, and you don't want that.
A company town is any town which doesn't have a diversified employment base. These towns are risky because the local job market can disappear in the blink of a “going out of business” decision by corporate brass. Cities like this should generally be avoided.
Markets to Invest In
Alternatively, there are a variety of markets which are good to invest in, such as:
- Cash flow markets
- Appreciation markets
- Special tax zones
Generally, we want to invest in areas which are friendly to our cause as investors. This makes it best to be in areas without rent control or an overreaching government. Instead, invest in areas with good cash flow, good appreciation potential, and special tax zones.
Where to Get Information
If you're interested in researching some of the best areas to invest, here
are a few places to start. The US Census is a great resource, and hosts a helpful website with potentially too much information.
It's also a good idea to keep an eye on movers and migration trends. U-haul has a great website to research this, because it can actually tell you the cost of moving from one area to another. If you're interested in paying for comprehensive information, Jason Hartman sometimes uses the site ProMover.org, which surveys the top eight movers to produce in-depth results.
To research housing starts and building permits – an important part of income property investment – explore Best Place Books, CNN Money, the Places Rated Almanac, and Forbes. For information about the best places to live, sites like CitiesRated.com provides insightful information.
Lastly, it's a good idea to research property managers, real estate brokers, and developers
in promising markets. They can provide fantastic, in-depth information on just about any market if you can get in contact with them. (Top Image: Flickr | Miheco)
The Young Wealth Team