What are the Best Cities to Invest in Single-Family Rentals? Part 4

Today, I am covering our final data point in our data-based analysis for determining what cities are better than others for investing in residential real estate.

The last data point is growth in home values. If you’ve been reading every blog post, you can skip this next section.

First, here is a rehash of the other data points already discussed in previous blog posts.

  1. The July 30 Post covered the most important demographic data, including job growth, population growth and income growth.
  2. The August 3 Post covered data supporting well cared for neighborhoods and quality of life in a city.
  3. The August 6 Post covered data supporting my affordability index.

So, for residential investors, is growth in home values a good indicator for determining what cities are better than others for investing?

Overall, I would say Yes. But there are negative points as well as positive points. Home values and rent values do not always change by the same percentages over time. Here are some factors to consider when looking at changes in home values.

  • If home values go up, but rent doesn’t, that can make renting more affordable for residents and more likely to choose renting over owning which is a positive for investors.
    • However, a negative point is that the cost to invest is higher without a corresponding increase in revenue which will reduce the cash on cash return on investment.
  • If home values have risen very fast in recent years, there is a higher risk that values will decrease or stagnate in future years until the supply-demand dynamic comes back into balance.

Where do we get this data?

The same place we are getting a lot of our city-based data. We can get this from http://www.city-data.com/. Just pull up the city you are looking at and page down about one page and you will find this data. As of August 2020, the website is showing this data for the years 2000 and 2017. This is a good long period of time to get a sense of the long-term trend in home prices in a city.

How do I use this data?

I use this piece of information as a confirmation that job growth and population growth are leading to increases in housing values.

However, if I find that the values in a city have increased substantially more than most other cities with similar growth in jobs and population, then I might not be interested in investing there. The reason is that pricing may have risen too fast too quickly. It will also likely lead us to invest at too high a price point to make a good return. There are always other cities to go invest in.

There is one more piece of data that I use to determine the best cities to invest in residential rental properties and it will help address how COVID-19 might affect the investment desirability of different cities.

Please comment below with your comments or email me to discuss. If you would prefer to talk on the phone or Zoom, please use this Calendly Link to Schedule a Call.