Having the Experience and Knowledge to Identify Lucrative Markets Is Key to Gaining Substantial Returns.
Available properties are abundant, but how do you identify the best place to buy investment properties? There are various strategies on how to choose the right real estate market to leverage and build wealth, depending on your goals. Potential investors need to be informed regarding these various strategies and how they apply to specific potential geographic markets.
Finding older investment properties and renovating to current standards is leading to healthy profit margins.
Purchasing homes, renovating and reselling, or “flipping” houses is nothing new. In fact, it is one of the best ways to make a quick turnaround on your investment. A recent report from CoreLogic found that 10.9% of homes sold in the U.S. during Q4 of 2018 were flipped. This flip rate has been consistently increasing for more than 12 consecutive quarters. The best place to buy investment properties tends to be those with a large percentage of older homes and low incidence of new housing development. Baltimore and Philadelphia topped the charts of the report, with Philadelphia showing impressive returns of more than 92.8%! In contrast, other cities average a 10% ROI.
Investing in markets with high rental demand is beneficial during economic prosperity and recession.
Finding a rental market that balances demand with affordability can be a challenge. Ingo Winzer, President of Local Market Monitor, Inc., a real estate forecasting firm, shared sound advice with Forbes readers:
“You should concentrate on properties where the rent doesn’t stray more than 25% or so above the average rent. That is where you’ll find the largest concentration of renters, a very important consideration if and when a recession hits.”
Markets like Baltimore and Philadelphia have a large percentage of renters when compared to the rest of the nation. Baltimore now has more renters than homeowners, according to a recent article in the Baltimore Sun. Philadelphia isn’t far behind with a renter percentage of more than 47%. Historically, when an economic downturn occurs, the inventory of available homes declines, greatly increasing rental demand. When you invest in an area that already has a high percentage of renters and low vacancy rates, you are creating recession-proof cash flow.
Markets with a long history of upward trending rental income protect against short term volatility.
While some areas of the nation have experienced sudden increases in renting prices, it is vital to look at trends over time. Is the sudden jump due to a recent employer move? Are there plans for new housing development?
When it comes to Baltimore and Philadelphia, rents have continued to increase each year steadily, driving property values upward and attracting the attention of potential investors. As of March 2019, the average rent for an apartment in Baltimore was $1455, a 4.6% increase from last year. The average rent for an apartment in Philadelphia currently sits at $1,576, a 5% increase compared to the previous year. It is anticipated that these increases in Baltimore and Philadelphia will continue in the future due to increasing career opportunities and low vacancy rates, driving rental demand.
Rental markets inside an already stable economy serve as a solid foundation for continued increases in returns.
When searching for the best place to buy an investment property, choosing a market with a stable economy is vital. There are various factors that you will want to identify, including a high median salary, large employers, or innovative startups. For example, Philadelphia is a major hub for Fortune 500 companies, attracting career-seeking millennials, a key indicator for future sustained growth. Baltimore boasts a median salary of $70,000 and home to major corporations like Under Armor, Morgan Stanley, Pepco, and Johns Hopkins Hospital. With a stable economy and reliable employers, you are more likely to have better school districts, which can also drive rents upwards, further increasing returns. While ‘up and coming’ cities seem tempting, it is essential to look at what makes a location a desirable place to live.
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