Top 4 Markets for U.S. Real Estate Investment in 2019

I am witnessing a paradigm shift in foreign real estate investment in U.S. real estate. The days of international investors exclusively targeting historical hotspots like New York City and Los Angeles are finished.

Informed investors are now targeting secondary markets. Particularly, secondary markets where rental income potential exceeds the comparatively low returns in “primary” markets where artificially high prices (driven partly by foreign investment) and rent unaffordability impede future growth.

This shift to U.S. secondary markets is also driven by tax considerations. Recent changes to the tax laws have essentially equalized the highest income tax rate for domestic corporations (a popular vehicle for foreign investors) and the highest capital gains rate for individuals, making rental income an increasingly important factor in investment decisions.

Three Tools for Evaluating Real Estate Investment in Secondary U.S. Markets

Rent affordability and rental growth

The emphasis here is on the rent as a percentage of household income. A lower ratio indicates that there is room for future rent growth. Rental growth rates are also an indicator of the relationship between supply and demand in a given location and future rental income upside.     

Demographics

Rising population and employment figures are good indicators of rising/sustained demand.

Rental income (cap rates)

Looking for things like capital appreciation are essential to your evaluation.

My Top Four U.S. Markets for Real Estate Investment 2019

Orlando, Florida

real estate investment us

Orlando is regularly listed among the top investment property markets in the U.S. And for good reason. Orlando’s job and population growth are turning the city into a boomtown.  In fact, Orlando’s population and job growth rates are projected to be more than double the national average over 5 years.[1]

Orlando saw a 6.7% year-over-year rent growth in 2018[2]; but remains affordable with a rent to household income ratio of 26.7%.[3] Further, the Orlando-Kissimmee-Sanford area experienced a 7.3% increase in home sale prices in the year ending Q3 2018, far above the national average and well-outpacing inflation.[4]  

Atlanta, Georgia

real estate investment us atlanta

Atlanta is another city for real estate investment that is often listed among the top real estate investment markets in the U.S.  The city’s population is growing rapidly and projected to increase at an annual rate of 1.3% over 5 years (almost double the national average); whereas employment is projected to grow at a rate of 1% annually over 5 years (almost double the national average).[1]  

Atlanta’s annual rental growth rate of 5.3% in the year ending January 2019 was the 4th highest in the U.S. according to a recent study.[2]  Despite this growth, Atlanta’s rent to household income ratio is low at 22.1% in 2018, so renters are not overly stretched to make rent payments. Best of all, median sale prices on existing homes in Atlanta-Sandy Springs-Marietta increased 9.7% in the year ending Q3 2018.[3]      

Detroit, Michigan

real estate investment us detroit

Detroit (and its surrounding suburbs) remains an excellent target for real estate investment. The driving force here is affordability with rent comprising only 20.1% of household income in Detroit, a function of the city’s affordable single-family housing and the high real per capita personal incomes of residents of the area.[4]

As an example, I recently acted for an investor in the purchase of a condo in a Detroit suburb for 222K (all in after renovations) and leased the unit out for $2,600 a month on a 3-year corporate lease equal to a slightly more than 14% annual gross yield. Few places offer this high a monthly rental rate at this price point on a long-term lease.

Add to that a 6.9% increase in the median home values in Detroit in the year ending April 2019 and it is easy to see why Detroit (and its suburbs) remain attractive for investment.[5] 

Charlotte, North Carolina

Charlotte, North Carolina real estate investment

Charlotte just beats Raleigh-Durham for the 4th and final spot on my list, although they share many of the same attributes.  Charlotte’s projected annual population growth over the next 5 years is 1.5% (more than double the national average).[6]  Charlotte is also attractive to younger residents and the city’s population is younger than the national average, all good indicators for future demand.[7]  Further, Charlotte’s annual job growth rate is projected at 1.3% over 5 years.[8]

Charlotte’s low rent to household income ratio of 20.6% and strong rent growth rate of 5% YOY for apartments (according to a September 2018 study) are good signs for upside in future rents.[9]

Further, the median sale price of existing single-family homes in the Charlotte-Concord-Gastonia area rose 5.1% in the year ending Q3 2018.[1]  

If you are ready to take the plunge into real-estate investment, or need additional guidance when investing in the U.S. give me a call today!


Please note, the information herein is for information purposes only and does not constitute tax, brokerage or legal advice. 


[1] See PWC’s Emerging Trends in Real Estate (2019) at: https://www.pwc.com/us/en/asset-management/real-estate/assets/pwc-emerging-trends-in-real-estate-2019.pdf

[2] According to Rentonomics, see: https://docs.google.com/spreadsheets/d/1eqCtTK0T0pSmTihu_ETUMKdzLdLMH3yZ12OaD_3tSnQ/edit#gid=0

[3] See PWC’s Emerging Trends in Real Estate (2019) at: https://www.pwc.com/us/en/asset-management/real-estate/assets/pwc-emerging-trends-in-real-estate-2019.pdf

[4] According to The National Association of Realtors, see:  https://www.nar.realtor/sites/default/files/documents/metro-home-prices-q3-2018-single-family-2018-11-01.pdf

[5] See PWC’s Emerging Trends in Real Estate (2019) at: https://www.pwc.com/us/en/asset-management/real-estate/assets/pwc-emerging-trends-in-real-estate-2019.pdf

[6] https://atlanta.curbed.com/2019/2/25/18239643/rent-growth-outpace-national-average-report

[7] According to The National Association of Realtors, see:  https://www.nar.realtor/sites/default/files/documents/metro-home-prices-q3-2018-single-family-2018-11-01.pdf

[8] See PWC’s Emerging Trends in Real Estate (2019) at: https://www.pwc.com/us/en/asset-management/real-estate/assets/pwc-emerging-trends-in-real-estate-2019.pdf

[9] Zillow

[10] See PWC’s Emerging Trends in Real Estate (2019) at: https://www.pwc.com/us/en/asset-management/real-estate/assets/pwc-emerging-trends-in-real-estate-2019.pdf

[11] Id.

[12] Id.

[13] See id; see also: https://www.charlotteobserver.com/news/business/article220152025.html

[14] According to The National Association of Realtors, see:  https://www.nar.realtor/sites/default/files/documents/metro-home-prices-q3-2018-single-family-2018-11-01.pdf