The age-old adage that real estate is all about location still stands. The better the location, the better your prospects for making serious money. But like any investment, there are many considerations to look into before considering real estate investing. And there are risks to any investment, whether real estate or an income fund.
2023 is set to be an exciting year, and real estate markets are rebounding and responding to post-COVID life. Here are some of the best places to invest in real estate in 2023.
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The Best Cities To Invest In Real Estate In 2023
With the new year just beginning, smart real estate investors in single-family homes are asking which cities will be best for real estate heading in 2023
Every year the Urban Land Institute and global consulting and tax firm PwC list the top housing markets for the upcoming year. According to the 113-page report on Emerging Trends in Real Estate the top 9 markets with the best overall prospects for real estate in 2023 are:
- Nashville, Tennessee
- Raleigh/Durham, North Carolina
- Phoenix, Arizona
- Austin, Texas
- Tampa/St. Petersburg, Florida
- Charlotte, North Carolina
- Dallas/Fort Worth, Texas
- Atlanta, Georgia
- Seattle, Washington
What Makes A Real Estate Market Attractive For Investors?
Three factors contribute to a solid real estate market for investors:
- Cash flow
- Balance of cash flow + appreciation
Any combination of these three can make markets ideal for investors.Here’s insight on what to look for when searching for the next good real estate market.
How To Find A Good Market
Here are seven factors that help make a real estate market good for investors:
- Job creation that’s above the national average.
- Current and expected future population growth is also above the national average.
- Building permits pulled current construction activity and forecasted growth in real estate development.
- 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 overburdened with red tape and regulations.
- Housing affordability by using the price-to-rent ratio to compare median home prices to median rents.
- The absorption rate, or the time that it takes for new housing that is brought to the market to be purchased or rented.
- The vacancy rate, comparing the average in your target market to the overall average vacancy rate for similar markets.
Finding Good Rental Markets
Whether you are investing for long-term passive income, as a productive retirement strategy, or as a hedge against inflation, finding the highest return on investment with the least amount of risk is always the ideal scenario for investors. When determining where to buy, investors would typically look for areas with high rental demand, a low tenant default rate (which we can infer from unemployment rates), and the expected rent growth.
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 A Cash Flow Property
There are two financial metrics used to identify a property with strong cash flow:
- 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.
- 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.
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 increase year after year.
Best Of Both Worlds: Cash Flow + Appreciation
Investors in single-family rental property can have the best of both worlds by owning a property with solid cash flow and solid appreciation. This balanced approach focuses on strong long-term appreciation plus steady cash flow income.
Commercial Real Estate Investment
Another option to consider for investment purposes is commercial real estate. With the same type of variety in residential properties, commercial real estate can provide more stability in returns.
Real Estate, Income Vs Growth Funds
Like the combination of cash flow and appreciation real estate property for investments, income and growth funds give the best of both worlds. While they’re used independently of each other to diversify portfolios, income vs growth funds should be taken into consideration for all investment goals as they’re a great option for everyone.
Ready to look into your investment options? Saint Investment has you covered for all your financial services, including income funds. Our finance specialists are here to help, whether you’re starting your journey, or a seasoned investor, Saint Investment is here to help.
Frequently Asked Questions:
The cities with the greatest property values and appreciation rates might fluctuate based on current market circumstances and economic data. In the United States, San Francisco, New York City, and Los Angeles are examples of cities with historically high property values and appreciation rates. Seattle, Denver, and Austin are three other cities whose real estate values have increased significantly in recent years.
It is essential to remember, however, that the real estate market is in a continual state of flux, and what one year may be deemed a top city for investment may not be the same the following year.
Prior to making investment selections, it is usually vital to conduct an extensive study on the current market circumstances and trends.
The optimal markets for rental revenue and occupancy rates might fluctuate based on the current economic climate and demand for housing. Strong employment growth, population expansion, and low vacancy rates are typically associated with increased rental revenue and occupancy rates.
In cities with several colleges or military posts, rental housing is frequently in great demand. New York City, San Francisco, and Los Angeles are cities with historically robust rental markets in the United States.
Seattle, Denver, and Austin are three other cities with thriving rental markets in recent years.
However, prior to making investing selections, it is essential to conduct research on current market circumstances and trends.
Tax rules and regulations governing real estate investments might vary by city and state.
Generally, rental income and capital gains from the sale of a property are liable to federal income tax for real estate investors. In addition, the majority of states have their own income tax rules and regulations. Some towns and states may give tax deductions for mortgage interest and property taxes to real estate investors. Some states also have laws that restrict the authority of local governments to levy property taxes.
Short-term rentals (such as those found on Airbnb) may be subject to additional taxes and restrictions in some cities. Prior to investing in short-term rentals, investors should be aware of these rules.
Always contact a tax expert who is familiar with the unique rules and regulations of the city and state where you are investing in real estate.
Real estate development zoning rules vary by city and state and can affect a property’s profitability.
Zoning regulations control land use, property kinds, and development density.
Each zoning category—residential, commercial, industrial, etc.—has its own rules.
A residential zone may only allow single-family residences and multi-unit structures, whereas a commercial zone may allow office and retail buildings.
Overlay zones add limitations to base zoning in certain cities.
A historic overlay zone may mandate new construction to use specific architectural styles or materials.
Research the area’s zoning regulations and limits before investing.
A local real estate agent or attorney can assist you.
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.