We will discuss the best place to buy investment property in the United States based upon population shifts, growth, economic patterns and demographic changes.
The COVID-19 pandemic has had a tremendous impact on the real estate market beginning in 2020. There are big changes unfolding and shifts in how people work and live. In addition, businesses have suffered great harm because of mandated shutdowns. As a result, patterns in where people live and work are changing in 2021 and beyond. However, we believe that there will be many opportunities for investors in the future for purchasing real estate investment properties.
Economic Pattern: A Real Estate Bubble
Unemployment, Low Interest Rates and Coronavirus Had a Big Impact on the Economy
The United States real estate market has been growing at a very fast pace for years. Some would call this growth a bubble. In this case, the bubble has formed because credit is easily accessible for most people who want to buy a home.
Interest rates for home mortgages are at historical lows. According to Bankrate, the interest rate on a 30-year mortgage averages around 3%. Some people would argue that interest rates are lower now than at any time in history. This is a pretty big deal and things can’t remain this way forever.
According to the Bureau of Labor Statistics, 13% of Americans were unemployed in May 2020. In addition, 30 Million Americans filed for unemployment benefits in June 2020, approximately 10% of the entire US population (Source: CNBC News).
The coronavirus outbreak of 2020 has had big impacts on the US economy. Big layoffs and job losses have occurred continuously in 2020. For example, Disney and MGM have laid off thousands of workers. These layoffs mean that these former employees will be struggling to make ends meet and won’t be buying new homes.
People are Moving away from States Like New York and California in Large Numbers
It’s important to understand that real estate prices are going down. However, there will be winners and losers in the market short term. For example, it appears that in the short term, a divided real estate market may present itself.
Current data being reported in the media shows people leaving larger coastal cities and going to smaller inland cities. For example, Californians have been moving out of California to places like Washington, Arizona and Texas in record numbers. This is not a new phenomenon and the trend appears to be gaining speed.
As a result, larger coastal cities like Los Angeles and New York City are seeing reductions in demand for real estate as residents leave the cities permanently. In turn, smaller cities like Phoenix and Las Vegas are experiencing higher demand for real estate as residents move in from the coastal cities.
Populations are Moving to Smaller Cities
It appears that in the short term, cities where people are moving to (like Las Vegas) may see higher prices during the coming real estate bubble deflation. The worst-case scenario for cities receiving the influx of those moving from elsewhere would be that property values would remain steady.
Juxtaposed to this phenomenon, larger cities are seeing an increase in available real estate, causing supply to outpace demand. As a result, prices are already dipping lower in cities seeing a mass exodus.
The lesson here is that in order to make logical real estate market predictions for your home market, determine whether you are in an area where people are moving to or from. For example, if you live in Phoenix, Arizona, you are probably in a strong market that is attracting Californians. As a result, prices will likely be stable or even positive in the near term.
Now, one other caveat to consider is the state of the economy currently. Unfortunately, unemployment rates are high the US. Higher unemployment rates are negative for home buyers and are typically seen as a harbinger for decreased demand. As a result, unemployment may cause a decline in home buying nationwide. But we still haven’t answered the question of where the best place to buy investment property might be. Let’s take a closer look at demographics.
In “The Demographic Cliff” by Harry Dent, it is noted that the baby boomer generation (“Boomers”), those born between approximately 1946-1964, are retiring now. As a result, these baby boomers will be down-sizing from larger homes to smaller homes and buying vacation homes.
Prior to the COVID-19 Pandemic people were already beginning to shift in where they lived and how they lived. Now, the changes in living patterns and demographics have been accelerated. In general, more people will move out of bigger cities and move to areas with less dense populations. For example, people are moving out of cities like Los Angeles and moving to places like Idaho.
Individuals are selling expensive homes and flats and buying more affordable properties to replace the high priced, big city real estate. Boomers are selling their large family homes and moving into smaller, more affordable homes.
Best Place to Buy Investment Property
So where is the best place to buy investment property? The answer is that there are many places that may be considered the best place to buy investment property. First, let’s discuss the places to avoid.
Big Cities: Not the Best place to buy investment property
It’s important to note that buying rental properties is a great way to build wealth. Great real estate investors like Robert Kiyosaki and Ken McElroy recommend buying rental properties to generate passive income. The caveat for selecting the best place to buy investment property is to carefully choose the market and location of the rental property.
At the moment, real estate prices in big cities like New York City are still high priced. Yet, many people are moving out of the big cities. As a result, big cities are probably not the best place to buy investment property today. However, if real estate prices in the bigger cities become cheap in the future, then the big cities may become the best place to buy investment property.
Buy Where There is Growth and Population Movement
Most Growth in the United States is Occurring in the South and West
One rule that smart real estate investors use is to buy properties where populations are growing. Population growth and population movement tend to drive prices up in real estate markets. Basic economics tells us that when there are more people demanding housing, supply cannot keep up with demand. As a result, prices go up, which is good for landlords.
For many years, there has been growth in the South and Western United States. For example, a United States Census Bureau 2019 Article states that of the 15 cities in the US with the most growth, eight of them were in the South, six were in the West and one in the Midwest. Popular cities include places like Phoenix, Arizona, San Antonio, Texas and Jacksonville, Florida.
Narrow Down Your Real Estate Expertise
Focus on One Type of Real Estate, Such as Single-Family Homes, Duplexes, Apartments, Etc.
One of the recommendations made by real estate guru Ken McElroy is to narrow down the kind of rental property you want to buy. Many investors get caught up in trying to find the perfect property. However, they can get bogged down in the minutiae and complications of searching through so many different kinds of properties. This can lead to mistakes or errors, which means lost money.
Instead, McElroy recommends focusing on one particular kind of property for investment, such as only buying apartments or only investing in duplex properties. Narrowing down your focus on one type of property will allow you to become a true expert in that property type. In addition, you will automatically narrow down the list of properties that are for sale to a manageable number.
Second, Mr. McElroy recommends setting goals. In his book, “The ABC’s of Real Estate Investing,” he recommends setting a specific goal for yourself regarding what kind of property you want to invest in.
For example, your goal would look something like this:
I will acquire two duplexes in the Phoenix, Arizona area within the next 12 months and generate $1,000 of income per month.
Real goals set you up for real achievements. Furthermore, this is not a new concept. Author Napoleon Hill famously discusses the topic of goals and how to achieve them in his book, “Think and Grow Rich.”
Real Estate Market Predictions for 2021
As a Mass Exodus from Big Cities Occurs, Unemployment is High and the COVID Black Swan Hits, the Real Estate Bubble Begins Deflating
Here’s what our real estate market predictions look like for 2021. It’s impossible to predict the future, especially with so many unknowns at play. What we know is that real estate has been in a bubble for years because of low interest rate mortgages. Prices have gone too high, too fast. As a result, what goes up, must come down. Prices will be reduced in our real estate market predictions. The question is how long it will last.
Second, we know that people are leaving big cities and going to smaller cities. This mass exodus will have positive results for the smaller cities where people move. The cities that the emigration leaves behind will suffer with lower demand, lower prices and deflation of markets. How long it lasts is unknown.
Final Thoughts on the Best Place to Buy Investment Property
It seems clear that there will be many opportunities in the future for investing in real estate. Prices continue to increase throughout the United States, and experts believe the trend will continue. In addition, people are shifting from urban areas to more rural areas and driving up demand for real estate in these areas. As a result, we are optimistic about the future of real estate investing.
It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.
In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.