The Best Markets For Real Estate Investments In 2019

This coming year, most real estate investors will want to stay away from the cities with soaring prices, where they’re more likely to end up holding the bag than to strike it rich.

You can never know when a real estate bubble will burst – I happen to think it won’t happen in 2019 – but in places like San Francisco, Seattle, Miami and Denver, caution is now the order of the day. If you own property in these spots and plan to sell, don’t wait until the market has peaked. And if you’re looking for a good place to put your money, you should consider instead the 20 markets I’m listing here.

Despite feel-good talk about how well the economy is doing, it’s been adding jobs at the lowest rate in eight years. And despite the boom in tech, most new jobs are at the modest end of the pay scale, where inflation-adjusted earnings for the average worker haven’t increased in the last ten years.

This means we’ll continue to have high demand for rentals – single-family and apartments – but not at the high end of rents. And it means you shouldn’t invest in markets that are already over-priced – there just will not be enough renters for expensive properties as time goes by.

Even in the 20 markets I’m listing here, you should concentrate on properties where the rent doesn’t stray more than 25% or so above the average rent; that’s the Target Rent Range as we define it at Local Market Monitor, where you’ll find the largest concentration of renters, a very important consideration if and when a recession hits.

These 20 markets have several good things going for them. First, the local economy is doing well. Jobs grew at or above the national rate of 1.5% in the past year. In places like Cleveland (who would have thought?), Silver Spring and Fort Lauderdale, the rate of growth is even a good deal higher than just six months ago.

Second, demand for housing has been good. Home prices increased between 5 and 10% in the past year, not too little, not too much. Home prices are a marker of demand for both houses and rental properties.

And third, these markets aren’t over-priced. Look at how home prices compare to the “income” price, a metric we developed nearly 30 years ago to reliably identify bubbles in advance. Orlando, Fort Lauderdale, Portland and San Diego – with prices 20% above the “income” price – are edging into over-priced territory but not yet seriously. And the other markets have plenty of room for prices to increase before demand and supply are out of balance.

In all of these markets, look for properties that will put you in the Target Rent Range, where the renters are. (In Orlando that’s from $1,208 to $1,510 per month.) You’re partly investing defensively. And look for properties near hospitals, colleges (staff, not students), government offices, retail centers.

Aside from those generalizations, your best strategy will differ from market to market. The low home prices in Cleveland, Indianapolis, Memphis, Kansas City and Cincinnati encourage you to buy large single-family homes and split them into several rental units. In Silver Spring, Boston, San Diego and Washington, on the other hand, the high prices make investments in apartments a better alternative.

With prices climbing fast, you’ll want to move quickly in Orlando, Jacksonville, Fort Worth, Atlanta and Nashville.

In general, markets with high growth are better bets than those with lower growth, but a stable growth rate is just as important in the long run. And there are special vulnerabilities to consider. Orlando depends on tourism, Charlotte on banking, Fort Lauderdale on Miami, Fort Worth on Dallas, Memphis on FedEx, Silver Spring and Washington on government jobs and government contractors. Cleveland and Cincinnati still have a big manufacturing sector.

I’d have no trouble investing in any of these markets (although I’m not an investor), but overlooked spots like Cleveland, Philadelphia and Kansas City appeal to me the most because you’re more likely to find properties in very attractive locations, which in the end is what counts for a successful investment.

Even with interest rates inching up, investing in real estate – and especially in rentals – will be a good move in 2019. But it’s a good time stay away from the sexy markets and invest for long-term stability.  Monitor your markets closely this year.