Brief Summary
This presentation discusses how to identify the hottest real estate markets, focusing on key indicators and data analysis. It highlights the drastic increase in income required to purchase a home in the U.S. and offers strategies for investors to leverage these market conditions. The presentation also covers specific cities and their potential for investment based on population growth, income, home values, crime levels, and job growth.
- Overview of key real estate market indicators.
- Analysis of specific cities and their investment potential.
- Strategies for investors to capitalize on current market conditions.
Introduction
The presentation introduces the topic of identifying the hottest real estate markets, emphasizing that while the title suggests a narrow focus, the discussion will cover a wide range of markets. The presenter mentions highlighting Fayetteville, Arkansas, due to its impressive numbers, and will also discuss approximately 30 to 40 other cities. Additionally, the presentation will touch on the two cities GrowCapitus selected as the best for investment in 2024.
The Shocking State of Home Affordability in the U.S.
The presenter highlights a concerning trend in the U.S. housing market: the dramatic increase in the income required to buy a home. In August 2020, the average income needed was $74,000, but by August 2023, it had risen to $115,000. In San Francisco, the income needed to buy a median home increased by $100,000 in just 12 months, from $300,000 to $400,000. Even in Phoenix, the required income increased by 14% year-over-year. Despite interest rates being over 7% for nine months, home prices have continued to rise due to a lack of supply, exacerbated by the "locking effect" of homeowners with low mortgage rates being unable to move. This situation is creating a favorable environment for landlords, as millions of families are now priced out of homeownership and are becoming permanent renters.
GrowCapitus Overview and Investment Philosophy
The presenter introduces GrowCapitus, a syndicator and data science-driven company that buys and builds properties across various asset classes, including multifamily, student housing, self-storage, and industrial. They manage a portfolio of approximately $1 billion and encourage investors to diversify by owning one or two single-family rentals themselves. The presenter shares the company's average annualized returns, highlighting successful exits even amidst interest rate and cap rate increases. They also emphasize the importance of due diligence before investing.
Real Focus #1: Population Growth
The first rule for identifying promising real estate markets is population growth. For cities with populations between 250,000 and 1 million, a growth of 11.2% between 2012 and 2021 is desirable. Large metros should aim for about 7% growth, while cities under 250,000 should target 15% growth due to their higher risk. This data is based on publicly available information up to 2021, as population growth trends tend to be consistent over decades. The presenter demonstrates how to find this data by searching "population [city name] [state]" on Google and using an Excel spreadsheet to calculate the growth percentage.
Real Focus #2: Median Household Income Growth
The second key indicator is median household income growth. A desirable income growth rate between 2000 and 2021 should be at or close to inflation levels, with a minimum of 35.8%. Higher income growth is preferable, as it supports rent increases and reduces delinquencies. The presenter demonstrates how to find this data on city-data.com and input it into the Excel spreadsheet.
Real Focus #3: Median House or Condo Value Growth
The third factor is the growth in median house or condo values. A minimum increase of 58% between 2000 and 2021 is desired, with higher percentages being more favorable. This data is also available on city-data.com. The presenter illustrates how to find and input this information into the Excel spreadsheet, comparing Columbus and Cleveland, Ohio, to highlight the impact of population growth on home values.
Real Focus #4: Change in Crime Levels
The fourth metric is the change in crime levels. Profits in real estate are correlated to the change in crime, not the crime rate itself. The crime index should be below 450 and smoothly decreasing over time. The presenter explains that education is inversely proportional to crime, so this factor is already included. The presenter shows how to find the crime index on city-data.com and emphasizes the importance of a declining trend.
Idaho Falls Project
The presenter shares details about a project in Idaho Falls, a city that performs exceptionally well based on the real focus criteria. Idaho Falls has won the Milken Institute's City of the Year award three times and has seen significant neighborhood price appreciation and income growth. The presenter highlights the low taxes, insurance, and construction costs in the area, which lead to higher net operating income. They showcase a completed community in Idaho Falls with high rents and profitable returns, and preview an upcoming townhome community project.
Real Focus #5: 12-Month Job Growth
The final real focus is 12-month job growth, with an ideal target above 2%. For cities above one million in population, 1.5% is acceptable. The presenter emphasizes the importance of looking at annual numbers rather than monthly fluctuations. They demonstrate how to find this data on the Department of Labor's website, numbers.com, and highlight the significance of job growth for rental income.
Cities Analysis Based on Job Growth
The presenter analyzes various cities based on their job growth numbers. They caution against investing in cities with job losses and highlight several cities with strong job growth, including Charleston, Lexington, Raleigh-Durham, Boise, Las Vegas, Fort Collins, Jacksonville, Cape Coral, Huntsville, Gainesville, Ann Arbor, Grand Rapids, Sioux Falls, Dallas, and McAllen. They specifically praise Fayetteville, Arkansas, for its exceptional growth and mention its high ranking by the Milken Institute.
Q&A Session
The presenter answers questions from the audience, addressing topics such as finding good neighborhoods within cities, considering university towns, obtaining updated population data, applying metrics to suburbs, the impact of gentrification on crime rates, determining construction costs, identifying good areas for self-storage, and the effect of rising interest rates on the market. They also provide rapid-fire analyses of specific cities, including Charlotte, Houston, Dover, Minneapolis, Northwest Indiana, Fort Worth, Killeen, Kansas City, Phoenix, Denver, Atlanta, Montgomery, Detroit, Waco, Tucson, and Southeast Michigan.
