We’ll just say it: this has been a weird year.
Even that doesn’t seem to touch the reality we’ve all been dealing with for the past nine months. The year began with predictions of a housing market crash and, as we’ve seen, despite the economic impact of the coronavirus, the real estate market has been surprisingly tenacious where single-family housing is concerned.
We’ve covered so far why this has been the case. Whether motivated by a desire to leave crowded urban and multifamily spaces or incentivized by low interest rates, the only apparent obstacle for the housing market has been a lack of supply.
This demand hasn’t been exclusive to homebuyers, either. The demand for single-family rentals has been skyrocketing in the wake of the COVID-19 pandemic. According to the Single-Family Rental Market Index (published as a joint venture between the National Rental Home Council and John Burns Real Estate Consulting), the index rose to 76 in the second quarter of 2020, compared to a rating of 63 in the first quarter. The index scores from 0-100, with anything below 50 suggesting the market is contracting, and above 50 suggesting expansion.
We know, then, that there are opportunities in the world of single-family rentals. But where should real estate investors aim? What markets are the best for investing in single-family rentals in 2020?
As a general trend, the southeast and southwest have both seen tremendous growth in the single-family rental world. These are the markets that offer job opportunities and modern amenities without the extreme population density in primary markets. That, more than ever, is attractive to buyers and would-be residents.
Be sure to check out: 4 Qualities Shared Among High-Performing 2020 Real Estate Markets
Where are Investment Opportunities Booming?
Looking at statistics and reports from various publishers and groups, we see an emerging trend. Many of the markets that make “top places to invest in 2020” lists are located in the southern United States, reinforcing a trend towards growth in less populous cities. Looking across multiple lists and reports from QuickenLoans, Fortune Builders, Mashvisor, and other sources, we see several of our markets listed: sometimes more than once. Memphis, Houston, Dallas, Oklahoma City, and St. Louis appeared time and time again.
(As a refresher, our investment markets include Memphis, Dallas, Houston, St. Louis, Tulsa, Oklahoma City, and Little Rock.)
What we’ve found is that many of the reasons experts recommend investing in particular markets in 2020 come down to the same three factors that motivate us to target each of our markets all the time.
Job growth is often the driving force in the health of any market. That goes for their real estate markets, too! Job growth (both in the volume of jobs and their pay) incentivizes migration, which in turn increases the demand for housing and amenities. Job diversity is important, too: markets like Dallas and Houston thrive because they have a varied economy that provides many different types of jobs. This allows the economy to remain strong even when one industry is negatively impacted. Even though they are most known for the oil industry, the do not fully rely on that industry to support the whole of their economy.
Job growth, particularly in the long term, not only attracts a growing population but it retains that population over time.
With job growth comes population growth. As that population grows, so does the demand for housing. In part, this is why we have seen such rapid appreciation both in rent costs and median home prices in markets like Houston, Texas. For real estate investors, population growth is an indicator of sustained demand. Long-term growth trends point towards long-term opportunities for investment: which is what investors want!
Naturally, we would expect job and population growth to drive up prices. They do — but more in some areas than others. Despite rapid appreciation in Houston and Dallas, for example, housing has remained remarkably affordable when compared to other high-demand markets. For real estate investors, the price point is of particular importance as it, compared to rental rates, determines the equity you can build and the true value of your passive income.
One market may be affordable to one investor and unaffordable to the next. Carefully evaluate your finances to see what makes sense. Of course, affordability alone isn’t enough — the increased and sustained rental demand from population and economic growth are both necessary parts of the equation.
Successful Real Estate Investment Starts Here
For real estate investors, it is not enough to target the markets that are ideal this year. Naturally, we’re attracted to the best opportunities of the moment. We don’t want to miss out. And while investing strategically — including with timing — is valuable, the long-term is much more important.
When REI Nation adds offerings in new markets, you can rest assured that these cities and their real estate have been evaluated not for short-term gains but for long-term potential. At REI Nation, we’re about building wealth that lasts.
Realize your real estate investing potential now.