2018 Hot Market Picks for Real Estate Investors

Every year, real estate analysts, experts, and economists release assorted “top hot markets” lists related to housing. These lists should always be taken with a healthy dose of context. As Svenja Gudell, chief economist at Zillow and January’s Think Realty cover story feature says, “Economists, like meteorologists, should be taken with a grain of salt.” The truth of the matter is this: We can forecast the future, but we cannot predict it with certainty. Furthermore, when it comes to hot markets in real estate, most of these lists do not actually cater to the active real estate investor but rather one of two populations: owner-occupants and renter-occupants, or water-cooler analysts and newshounds. Thus, these lists are generally highly entertaining but generally irrelevant in and of themselves to a truly active, invested portfolio builder.

Think Realty Hot Market List

To fill the gap, Think Realty Magazine has compiled a list of hot markets for real estate investors in 2018. These markets share a number of attributes, which we’ll itemize below, but you will notice that they run the gamut in terms of size, home

values, and demographics. What they do have in common is that we believe they are well-positioned to not only support active real estate investors engaged in deliberate, knowledgeable investment strategies, but also to offer a low enough barrier to entry to relatively new investors that the market is not exclusionary of new and beginning investors.

To that end, our five hot markets offer a compelling combination of following attributes:

• • Solid commuter suburbs
  • Growing populations or population segments according to reliable data sources, including but not limited to the U.S. Bureau of Labor Statistics (BLS) and the Census Burea
  • Solid jobs ecosystems not reliant on a single industry
  • Multiple options for investor entry into the market or a prime opportunity for a specific, credible strategy
  • Relatively strong housing affordability based on cost of living, median income in the area, and median income of any incoming buying population
  • Proximity to a major metro area or inclusion in a metropolitan combined statistical area (CSA)

Note: Not all markets on our list meet all criteria, but they do meet a compelling number of these requisites.

1| Salt Lake City, Utah

CSA: Salt Lake City-Ogden-Provo, UT

CSA Population: 2.5 million (2010 Census)

Unemployment: 3.0% (BLS, October 2017)

NOTABLE FACTS

• • • Utah is one of only four states to experience double-digit job growth since the Great Recession.
    • Salt Lake City’s cost of living is two percent lower than the national average.
    • The city’s nickname, “Silicon Slopes,” indicates the burgeoning tech industry and existing tourist/hospitality industry, a combination that makes the market extremely attractive.

CONCLUSION

Salt Lake City has a relatively small population, access to an international airport, well-developed public transit, and sits in the crossroads of major highways, making it well-positioned to grow and support a growing suburban population.

Tight inventory and rising rents could make market entry with a fix-and-flip or wholesaling strategy challenging but building a single-family or multifamily rental portfolio is an affordable, and likely profitable, cash-flowing option.

2| Seattle, Washington

CSA: Seattle-Tacoma-Bellevue, WA metropolitan statistical area (MSA)

CSA Population: 3.8 million

Unemployment: 3.8% (BLS, October 2017)

NOTABLE FACTS

• • • Seattle home prices have risen 80 percent in the past five years.
    • Seattle had the biggest annual home-price gains in any region for 12 straight months as of November 2017.
    • Luxury home prices are stabilizing, but less expensive homes are still skyrocketing in value.
    • Seattle was the top market for Chinese real estate investors in 2017.
    • Seattle is home to Amazon’s HQ1, Oculus VR, Airbnb, Oracle, and many other tech companies that dominate the office space sector and create ongoing demand for single-family residential real estate for employees.
    • The population of the Puget Sound Region, which is comprised of the Seattle MSA and Olympia, Washington, is roughly two-thirds of the entire state’s population

In Seattle, the real estate game is great – if you can get in. Craig Macken, CEO of Rainier Home Buyers and Seattle native, reported his company is generally simply flipping properties to other investors rather than renovating them. “We can only flip so many homes at once, so this strategy helps reduce our risk footprint,” he said. Macken added that Rainier has increased online, and direct mail marketing spends to find off-market deals. Investors hoping to take advantage of long-term returns by owning Airbnb properties or rental properties will likely have the best chance at entry by obtaining off-market deals at a discount, then updating them.

3| Austin, Texas

CSA: Greater Austin, Austin-Round Rock

CSA Population: 2 million

Unemployment: 2.6% (Texas Workforce Commission, November 2017)

NOTABLE FACTS

• • • Austin is the capital city of Texas.
    • In July 2017, Forbes named Austin the most overvalued city in the U.S.
    • In Q3 2017, Austin-area builders started 12.5 percent more new homes than the previous year, the highest number of housing starts since Q3 2006. In the Austin-Round Rock metro area, new-home starts were up 19.1 percent in Q3 2017.
    • Median new-home price in the Austin metro area is just under $290,000, placing the new inventory in the price range for strongest demand.
    • Austin home prices have risen 63 percent since 2007.
    • Austin’s jobs market hinges on high-tech jobs at professional, scientific, and technical services firms, bolstered by the hospitality sector.

CONCLUSION

Given Dell, IBM, Apple, AT&T, Samsung, and National Instruments all have significant presence in Austin as well as a number of colleges, universities, and healthcare providers, the local economy is well-positioned to continue growing without creating a housing bubble and, thanks to that new development in Q3, concerns about overvaluation may be diminishing. Texas is an extremely investor-friendly state and offers more room than most when it comes to sheer square mileage in which a metro area might expand, making areas surrounding the Austin metro potentially prime areas for market entry as well. However, be alert to shifts in investment trends since hot markets often change course quickly. While both retail sales and long-term buy-and-hold strategies are presently yielding good returns in Austin right now, new investors are most likely to reap rewards by identifying good sources of median-priced homes either to rent or sell to retail buyers after updating the properties to current market standards. Those market standards could represent a pitfall if you do not fully understand the cost-benefit relationship between sales price, time on market, and certain popular upgrades.

4| Raleigh, North Carolina

CSA: Greater Raleigh-Durham, Raleigh-Durham-

Chapel Hill CSA

CSA Population: 2.1 million

Unemployment: 3.5% (BLS, October 2017)

NOTABLE FACTS

• • • Raleigh is the state capital of North Carolina.
    • Raleigh is part of the Research Triangle area, which encompasses the Raleigh-Durham-Chapel Hill CSA. The triangle area was established in 1959 and has brought in numerous science and technology jobs since that time.
    • Thanks to the Research Triangle, Raleigh is a major center for high-tech and biotech research.
    • Raleigh is one of two cities to benefit from global consulting, technology, and next generation service provider Infosys’2017 commitment to hire 10,000 American workers in the next two years.

CONCLUSION

“In Raleigh, all major economic indicators are pointing toward steady growth in 2018,” said Amanda Hoyle, regional director in the Raleigh/Durham & Triad NC area for Metrostudy. “Annual starts are up 11 percent and the area had the strongest third quarter since 2004.” Hoyle noted that if interest rates rise, this will impact buyers’ ability to purchase homes, but that she believes home prices and affordability will play a larger role in market growth. “Job growth must be maintained,” she explained. Thanks to a steady incoming population of highly skilled professionals, the Research Triangle that plays an integral part in the market’s culture and economy, and a relatively low cost of living that will likely continue to make Raleigh an attractive place to live (and an attractive place for developers to build), the future looks bright in North Carolina in 2018. Right now, investors are experiencing success with flipping, wholesaling, rentals, and new construction in Raleigh.

5| Tampa, Florida

CSA: Tampa Bay Area, Tampa-St. Petersburg-

Clearwater

CSA Population: 3 million

Unemployment: 3.3% (Florida Department of

Economic Opportunity, October 2017)

NOTABLE FACTS

• • • The Tampa Bay Area unemployment rate held steady between September 2017 and October 2017 despite economic damage caused by Hurricane Irma in September. Local economists credit a growing workforce and more jobs being filled for the steady numbers.
    • The Tampa Bay area will likely post higher-than-normal closing numbers when Q4 2017 numbers are released thanks to Irma-related delays late in the year.
    • Tampa was ranked in ATTOM Data’s top 10 cities for future homebuyers in Q3 2017.
    • If Congress undertakes flood insurance reform, Tampa’s housing affordability could decline as flood insurance premiums rise.
    • Median home prices in Tampa and median household incomes are compatible, making the market a largely affordable one for buyers and renters

CONCLUSION

Tampa offers low cost of living, a secondary market primed for expansion, and a growing base of tech jobs. The combination will likely bring in two key populations in any housing market: first-time homebuyers (older Millennials) and what many analysts are referring to as the “Silver Tsunami,” Baby Boomers retiring en masse and seeking urban living and an active lifestyle. “We’re actually primarily flipping leads right now because there are so many people who want to be active in this market but who still do not know how to have a conversation with a seller or negotiate a deal,” said Franklin Cruz, CEO of Tampa’s TrueInvestors and manager of the Bentley Private Fund. Wholesalers with negotiating skills will find their abilities in demand in Tampa whether they wish to sell to fix-and-flippers, landlords, or retail buyers. Cruz said most of his leads in the Tampa Bay area are coming from referrals, postcards, social media, and digital advertising, and he believes the market is accessible to new investors willing to put in the time to establish a strong stream of leads.

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