By Jason K Roberts, Special for USDR
If you Google ‘Where Are the Rich Investing Their Money’ one common theme in 2015 is apparent. The wealthy love real estate as a place to earn higher returns and protect their capital. The statistics vary from article to article, however, one thing is for certain. Real Estate is the number one asset class that has produced the most millionaires in our countries history.
I’m not going to delve into the difference between the ‘Buy and Hold’ versus ‘Fix and Flip’ strategies in this article. But it is important to know there is a big difference. One is for long term wealth creation and the other is strictly for income. One offers significant tax advantages and the other does not. However, they both have a place in almost every diversified portfolio.
So where should you buy real estate these days? First, the old adage ‘Location, Location, Location’ has not and will not change. Buy where people want to move and/or retire. It is always better to buy a more expensive property in a hot market than it is in a place like Detroit where houses were going for $2000 three or four years ago.
Next, follow the jobs! Look at states where there is job growth. Texas did not have the crash that many other markets dealt with in 2007. Why? They had strong job growth. So houses are now selling at prices higher than they were back then.
Let me say a word about speculation before we get into the best areas to buy real estate in the next 6 months. There is a major difference between what investors like myself do and that of speculators. In the early to mid-2000s speculators bought brand new construction and sold it for a profit only because the appreciation fueled by the loose lending regulations allowed it. Houses were going up 15-20% a year in certain markets which made everybody a real estate expert. Real investors purchase undervalued or distressed properties and create equity thru improvements in the asset and/or cash flow of the property. Understand that there is a major difference in the two philosophies.
It is important to understand that if your goal is to purchase a house to live in for your family with the intention of living in it for at least 7-10 years, then almost every market is a good market. You are not really buying it as an investment. It is your residence and the two are not the same. If you work in the area find the best school system and chances are your home will appreciate over that period of time.
Without being specific to any one town, lets’ discuss the general regions that make a lot of sense. Areas like Seattle, Chicago, the Northeast, Atlanta, and Denver all have good job opportunities which make housing strong. As long as this continues these markets will offer good opportunity for both investment and residential purchases.
The old manufacturing markets that led our country to become the industrial power of the 2nd half of the 20th century are tricky. They have a combination of some very serious issues to deal with in the next decade. First, manufacturing jobs have been moving off shore for the last 25 years and factories have modernized to a point where less and less people are required to build and make product. Another very serious issue is the debt load these cities are caring because of the government pension plans from 20 and 30 years ago. The tax base cannot keep up with these entitlement programs because of the lost manufacturing jobs. Detroit has already filed bankruptcy and many cities are said to follow after they see how that process plays out. Pick and choose your investments carefully in these areas.
California is an island in of itself when it comes to real estate. Personally, I would stay away from this area for the time being. When investors pay retail prices hoping that appreciation will earn them a profit, well, let’s just say that reminds me too much of 2006 again. If you can find a discounted property then count your blessings and by all means buy it. Aside from that there are much better areas that don’t have the pricing concerns.
Texas is a combination of great business tax rates creating jobs and opportunity in the technology sector. The oil industry until recently has also been a tremendous driver of good jobs, and it’s warm. Texas is still a state that I believe is a great area to buy real estate for all of those reasons.
Arizona and Las Vegas were tremendous growth markets back in the early to mid-2000s. They both were hit very hard by the housing crash but have come back in strong fashion. They are good retirement areas because of the climate and had good job growth albeit some lower paying service jobs. A word of warning with these areas however. If they run out of water like many scientists are predicting, all bets are off. You won’t be able to give away a house if this happens.
Florida remains my favorite market to buy real estate. I cracked up 4 years ago when the media started saying people were going to stop retiring in Florida and stay up north close to their families. Then 2 years of negative degree winters and they came running back. Prices are still below 2007 levels and are very affordable in many areas around the state. Jobs are coming to the state because of low taxes. And because of the climate, people want the lifestyle associated with warmer weather. Foreign money continues to pour into the area and investors are taking advantage of the opportunism.
There are still some great markets to purchase real estate, even after the gains of the last 3 years. As always, find an expert to help you evaluate these decisions before jumping in head first.
Jason K Roberts has been a real estate investor since 1994 and currently operates several investment companies. Jason is a nationally recognized real estate consultant and regular radio guest expert on personal finance radio shows around the country. For more info on Jason please email Jason@SellMyHouse.com or visit www.JKRInvestmentGroupInc.com.