Outside of the current COVID-19 pandemic, many novice and intermediate real estate investors have asked the question Where should I invest as the market improves?
The answer to that question is not as straight forward as it may seem, and it depends on a variety of economic, social, and political factors. For the sake of simplicity, investors asking this question should consider the economic make up of cities with growing populations.
Some people prefer investing in cities with a diversified economy, where population and job growth is based on multiple sectors taking a sizable share of the total economic growth. If one sector of the host economy is struggling, the city will not face a major economic impact as there are still jobs in other sectors. There will still be demand for housing, retail, commercial, and industrial space, and consumer spending will not be catastrophically decreased. These markets end up being a safer investment, especially since an investment's exit strategy can be better projected. Cities with notable population growth and diversified economies include Phoenix, Seattle, Charlotte, Boston, San Diego, and Atlanta. Some of these cities were dependent on just a couple industries prior to the Great Recession, and have since economically developed to prevent the same disaster again. Investors looking to analyze how these cities and others remain economically diversified can stay tuned for additional posts in the near future, or conduct some research on recent job creation based on industry in a given municipality. If you want to track population growth in terms of housing demand in metropolitan areas across the country, check out the Redfin Migration Report published in December 2019.
Investors can also follow population and job growth in boom towns. Boom towns can be in small, medium, or large-sized municipalities that are tied to a specific industry. Detroit and many other rust-belt cities exploded in the late 1800s until the mid 1900s through automotive manufacturing, just like how Williston, North Dakota and surrounding towns grew in the early 2010s thanks to the oil boom. Boom towns have to be expected to last just a few years in order to properly time an exit strategy (preferably the sooner you exit the better your return will be). These markets require some economic watchfulness to track where the current or next one might be. This path comes with greater risk than economically diversified towns due to a boom town going bust, decimating real estate demand for an indeterminate amount of time.
There are also some cities like Los Angeles, Las Vegas, Miami, or Orlando that are known for a specific economic sector (Entertainment, Hospitality & Tourism, etc...) but also have substantial job growth in the financial, technology, and healthcare industries. At the time of writing, Hollywood is at a standstill in television, movie, and music production. Hotels, resorts, casinos, and amusement parks are abandoned as the global tourism industry is paused and hospitality operators have halted operations to prevent the spread of COVID-19 in their normally tightly occupied shared spaces. The service sector employees of these businesses (many of whom are fiscally struggling at the best of times) are currently furloughed, laid off, or in a precarious employment position, leaving some landlords offering housing to working class or middle income without rent payments. Majority of these workers are likely to receive financial relief from the federal government and/or their employers in the near future, but it is uncertain when these industries will return to business as usual.
With all of that in mind, if you are looking for the right city to become a real estate investor and/or developer, consider the economic situation of a given city to measure the risk factor of real estate demand you are prepared to take on. If you need assistance in identifying real estate investment opportunities that work best for you, contact our team today.