In ordinary times real estate investors don’t worry much about where to invest. Every local market has opportunities, every one has rental properties you can buy, every one has homes you can develop to produce income. Growth markets provide the chance to get higher returns but even stagnant markets need housing that can provide better returns than stocks or bonds.
(Photo by Blake Nissen for The Boston Globe via Getty Images)
Boston Globe via Getty Images
Right now we’re not in ordinary times. The covid pandemic still threatens economic recovery, work and living patterns may be permanently altered, and a surge in home prices has disrupted our notions of what a home could be worth or what an investment property should cost.
Despite these difficulties – or rather, because of them – here is our guide using data from Local Market Monitor, Inc. for where and how investors can achieve the best returns with the lowest risk in the coming year. We will identify markets where demand for rentals should be strong but also – because most investors want to stay local – will show how to maximize your return in any local market.
Let’s start with the basics, will there be more or less demand for rentals in the coming years, and what kinds of rentals? The pandemic has soured a lot of people on living in apartments in crowded cities, the recent jump in prices means a lot of them are trying to buy a home. On the other hand, there are still fewer jobs than before the pandemic, and fewer people who can afford a home. Last year household income fell in all income brackets but most for people with modest incomes.
The job situation tells a similar tale. Most of the jobs lost during the pandemic were in low-pay fields such as retail, restaurants, tourism, nursing homes and temporary work. Many of those jobs will never return, yet the people who held them still have to live somewhere, and many of the new jobs created (in Amazon warehouses for example) have similarly low pay.
These developments point to an increase in renting over the next years, and especially in lower-cost rentals like apartments. In some places single-family homes are cheap enough to be part of that rent level but in many markets you’ll have to split homes into rental units.
Every local market has a rent profile – how many people pay how much rent – and a “best” rent range where you find the largest concentration of renters. At this time of greater demand, investors should aim for rents in the “best” rent range, which will usually mean apartments or row houses.
While this guidance applies in any market, it’s even more important in markets where home …….