What Are The Best Cities to Invest in Real Estate in 2020?

We all know that real estate is about location, location, location. But the important question for real estate investors is, exactly which location is best for investing?

In this article we’ll help answer that question by reviewing the top markets for this year, how to select a market based on investment strategy, and the best cities to invest in real estate as we head into 2020.

 

Review: Top 10 Markets of 2019

Gary Beasley is the CEO and Co-Founder of Roofstock. Earlier this summer he wrote an article for Forbes titled “Secondary Cities Make Up The 10 Trending Single-Family Rental Markets For Investors In 2019.”

Using an analysis of data from the U.S. Census Bureau and Zillow Research, Gary suggested smart investors watch these markets through the second half of 2019:

  1. Las Vegas: Record levels of convention business and tourism have helped the population of Vegas grow by 2.5% with rent prices increasing by over 10%.
  2. Orlando: Tourism and job market growth in leisure and hospitality are creating a large share of renter households with population growth at 2.4% and household growth at 3.4%.
  3. Atlanta: High-tech and financial services employers like Google and BlackRock are expanding thanks to Atlanta’s business-friendly climate, helping single-family homes to appreciate by more than 13% in one year.
  4. Charlotte: High quality of life and business-friendly environment are helping the population grow by 1.9% with forecasted household growth of 2.4%.
  5. Phoenix: One of the top job markets in the country last year, rent growth in single-family homes is expected to increase by 9% with the population growing by more than 2%.
  6. Dallas-Fort Worth: The #1 metro area for job growth last year, with single-family home values appreciating by 10.6% and a population growth of 1.7%.
  7. Jacksonville: An international trade seaport and city infrastructure improvements boosted economic growth, with rent rising by 3.7% last year and households expected to grow by 2.1% this year.
  8. San Antonio: Strong local economy in the 2nd-largest city in Texas helped to drive rent growth of 4.2% in 2018.
  9. Indianapolis: Affordability is attracting millennials from high-priced markets like New York and San Francisco, with single-family home appreciation in Indianapolis growing by 12.8% and rents increasing by 4.1% last year.
  10. Fort Lauderdale: Steady population growth and retirees with discretionary income helped real estate investors in this Florida city earn gross rental yields of nearly 10% last year, with households growth expected to reach 2.1% in 2019. 

 

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What Are The Top 10 Real Estate Markets for 2020?

With a new decade just around the corner, smart single-family home investors are asking which cities will be best for real estate heading into 2020.

Every year the Urban Land Institute and global consulting and tax firm PwC lists the top housing markets for the upcoming year. According to the 107-page report on Emerging Trends in Real Estate 2020 the top 10 markets for real estate in 2020 are:

  1. Austin, Texas
  2. Raleigh/Durham, North Carolina
  3. Nashville, Tennessee
  4. Charlotte, North Carolina
  5. Boston, Massachusetts
  6. Dallas-Fort Worth, Texas
  7. Orlando, Florida
  8. Atlanta, Georgia
  9. Los Angeles, California
  10. Seattle, Washington

Realtor Magazine took a deeper look at these emerging real estate trends and created five different categories of hot investment markets for real estate investors to watch in 2020.

Major Capital Magnets

Markets accounting for more than 17% of total real estate transactions over the last three years:

  • Manhattan
  • Chicago
  • Inland Empire, California
  • Northern New Jersey
  • Houston
  • Phoenix
  • San Diego
  • Oakland-East Bay, California
  • Miami

Determined Competitors

Housing markets with a consistent record of capital inflows and solid transaction volumes year-over-year:

  • Philadelphia
  • Long Island, New York
  • Fairfield County, Connecticut
  • Queens-Bronx-Staten Island, New York
  • Minneapolis-St. Paul
  • Sacramento
  • Kansas City
  • Las Vegas
  • Baltimore
  • Washington, D.C.
  • Detroit

Ripe for Discovery

Markets with at least one million people and population growth in the double-digits:

  • Jacksonville
  • Salt Lake City
  • Columbus, Ohio
  • Cincinnati
  • Louisville
  • Pittsburgh
  • Greenville, South Carolina
  • Oklahoma City
  • Cape Coral-Fort Myers-Naples, Florida
  • Boise
  • Spokane, Washington
  • Des Moines
  • Tacoma, Washington
  • Jersey City, New Jersey

Markets Meeting Expectations

Markets offering the best match between prospects and investment flows:

  • Fort Lauderdale-Tallahassee-Daytona Beach-Gainesville
  • Richmond, Virginia
  • Birmingham
  • Honolulu
  • Cleveland
  • Albuquerque
  • Omaha
  • Tucson
  • San Antonio
  • Buffalo

Thrifty Choices

Under-the-radar markets with low rankings and some weaknesses, but with selective opportunities when investing for long-term potential:

  1. St. Louis. Missouri
  2. Memphis
  3. New Orleans
  4. Providence, Rhode Island
  5. Hartford, Connecticut
  6. Virginia Beach-Norfolk
  7. Milwaukee-Madison
  8. Knoxville-Chattanooga, Tennessee
  9. Portland, Maine

 

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What Makes a Real Estate Market Food For Investors?

In the next part of this article we’ll discuss how to find markets and single-family rental property based on the three main real estate investment strategies:

  • Cash flow
  • Appreciation
  • Balance of cash flow + appreciation

But before we do, let’s talk about what makes a real estate market “good” to begin with.

What does “good” really mean?

You see, the word “good” is a pretty subjective term. 

“Good” pizza, “good” beer, “good” movie . . . everybody has their own opinion of what’s good and what’s not. But when you’re investing money in real estate, it’s important to understand exactly what separates good real estate markets from average, not-so-good, and even downright terrible.

How to find a good real estate market

Here are seven factors that help make a real estate market good for investors:

  1. Job creation above the national average.
  2. Current and expected future population growth, also above the national average.
  3. Building permits pulled, current construction activity, and forecasted growth in real estate development.
  4. Government planning on both the state and local level, and whether or not the municipality you’re considering investing in is pro-growth or is over-burdened with red tape and regulations.
  5. Housing affordability by using the price-to-rent ratio to compare median home prices to median rents.
  6. Absorption rate, or the time that it takes for new housing that is brought to the market to be purchased or rented.
  7. Vacancy rate, comparing the average in your target market to the overall average vacancy rate for the market.

 

Cash Flow Real Estate Markets

Real estate investors looking for homes that provide a return quickly focus on cash flow markets. Cash flow real estate generates a steady and predictable income stream through the holding period of the investment. 

How to find cash flow property

There are two financial metrics used to identify property with strong cash flow:

  1. Cash-on-cash return on a single-family rental house measures the annual before-tax income generated by the property divided by the total cash invested.
  2. Cap rate compares the NOI (net operating income before mortgage payment) to the price of the house.

The higher the cash return and cap rate, the better the property is for cash flow real estate investors. The Roofstock Marketplace makes it easy to locate rental property with these metrics.

By searching for properties with a higher yield, then sorting by cash-on-cash return, you’ll typically find hundreds of rental properties to choose from:

 

 

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Real Estate Markets with Good Appreciation Potential

Real estate investors who are looking for a healthy increase in property values over the long term focus on real estate markets with good appreciation. Population and job growth are two factors that help the market value of single-family homes to increase year after year.

How to find markets with strong appreciation

Zillow Research is a good resource for sifting through home appreciation data for every market in the U.S. However, why spend valuable time crunching the numbers when Roofstock has already done the heavy lifting for you?

On the properties section of the Roofstock Marketplace simply select the tab labeled “higher appreciation” to find dozens of listings with annual appreciation projected to be 3% or higher:

higher appreciation filter on roofstock

 

Best of Both Worlds: Cash Flow + Appreciation

Investors in single-family rental property can have the best of both worlds by owning property with solid cash flow and solid appreciation. This balanced approach focuses on strong long-term appreciation plus steady cash flow income.

Start by selecting the “higher appreciation” tab and sorting by cash-on-cash return on the Roofstock Marketplace:

balanced properties on roofstock

 

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Best Real Estate Markets For 2020 and Beyond

In Gary’s article for Forbes, he noted that while “the world is truly an investor’s oyster, deciding where to invest can feel like a herculean task.” 

Fortunately, Roofstock simplifies the task of finding rental property to match any investment strategy. Whether you’re focusing on cash flow, appreciation, or a balanced approach to both, Roofstock makes real estate investing radically accessible, cost-effective, and simple.

  • Top 10 real estate markets for 2020 include Austin, Dallas, Nashville, and Atlanta.
  • Factors that make a real estate market good include population and job growth, business-friendly government, high absorption and low vacancy rates.
  • Real estate markets can be good for cash flow, appreciation, or a balanced approach of both investment strategies.

 

 

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Jeff Rohde

Author

Jeff Rohde

Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles for firms such as RealtyMogul, Yardi Matrix, CrediFi, and Roofstock.

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