Consider things like security and ROI
Historically, investing in real estate has generated significant returns. The S&P 500 Index found that the average annual return on commercial properties is about 9.6% per year, only about 0.7% less than that of residential properties.
Current Trend: 7 Places Where Housing Prices Are Falling Post-Pandemic
Warning: 4 Awesome Things All Rich People Do With Their Money
But investing in anything, including real estate, has some inherent risks. Market timing, location, demand and property appreciation over time – among other things – can all affect your returns.
Given the importance of location, GOBankingRates asked two real estate investors – Christian Gore and Itay Simchi – where they would never buy property. Here’s what they said.
Chicago, IL
The average home value in Chicago is $296,901, an increase of 4.4% from last year. But liquidity is important to ensure solid returns on your real estate investment, but this city simply doesn’t have it.
“The state is financially irresponsible and in a bad position,” said Christian Gore, founder and managing partner of G1 Capital Partners, a private equity firm specializing in multifamily and industrial real estate investments. “There are scenarios in Cook County where property taxes have increased virtually four to six times, making it an illiquid market.”
For you: Is Barbara Corcoran right about the housing market?
Detroit, Michigan
“In my experience, there are several areas in the United States where I would never purchase property,” said Itay Simchi, real estate investor and founder of Proven House Buyers. One such city is Detroit, Michigan.
“With a staggering 35 percent vacancy rate, Detroit’s real estate market is still recovering from the decline of the auto industry,” Simchi said. “I saw first-hand how difficult it is to find reliable tenants and sell properties in this area. »
Home prices in Detroit are hovering at $73,843 on average, an increase of less than 2% from last year.
San Francisco, California
Housing prices in San Francisco are almost exorbitant. The average home value is $1,296,843, but this is a decrease of 1.6% over the past 12 months.
However, it is not just the cost of real estate that makes the city less attractive to investors. According to Gore, he would not buy property there because he believes the environment is dangerous and unpleasant for the people who live and work there. This, combined with the high overall cost of living, makes it a poor investment opportunity.
Baltimore, Maryland
“Baltimore’s high crime rates (55.4 violent crimes per 10,000 residents in 2022, FBI data) and population decline (a 1.2% decrease between 2020 and 2022) make it an investment risky for me,” Simchi said. “I have already had problems with property damage and low rental income.”
The area may be a slightly better investment for residential properties, but it’s all subjective. Currently, the average home in Baltimore is valued at $187,223, less than half the national average. This is, however, an increase of 5.3% over last year, a potential sign that real estate is on a steady rise.
New Orleans, Louisiana
New Orleans is another potentially risky investment, Simchi said. Crime rates, especially violent crime, are still high in the region. Along with this, the city lacks overall economic growth.
In New Orleans, the average home is valued at $247,524. This may seem attractive at first glance, but it is also a decrease of 6.4% from the previous year. And then, when you add in high property insurance rates, you could be looking at a potentially expensive investment.
“I saw properties damaged by natural disasters and had difficulty finding quality tenants,” Simchi said.
New York City, New York
Investing in New York real estate is not for the faint of heart, nor is it for new investors unless they know what they are doing and have a lot of capital. On average, homes cost $748,012 in the city and have remained relatively stable over the past year. No decline could be a good thing, but no increase could also mean negligible returns.
“The tax burden in New York has increased significantly,” Gore said. This made it “very difficult to make sense of the investment here.”
Gore also added that many New York residents actually migrated to the Southeast. This does not bode well for those looking to make a fortune investing in New York real estate.
St. Louis, Missouri
St. Louis is another region struggling with high crime rates and low economic growth rates, according to Simchi. This made it difficult for him to find good tenants for his rental properties, as well as sell properties quickly.
Of course, everyone’s experience will be different. Currently, the average home value in the city is $177,243, an increase of 5.3% since last year.
Memphis, Tennessee
“While Memphis has potential, its high poverty rate (24.6% in 2022, U.S. Census) and low median household income ($44,445 in 2022, U.S. Census) make it a tough sell for me,” Simchi said. “I have seen properties sit on the market for months and rental income is often unreliable.”
Properties in Memphis cost around $151,054 on average, so it could be a decent place for new investors who want to start small. At the same time, Zillow found that home prices have fallen 2.7% since last year — a potential concern for those seeking higher returns.
Washington, D.C.
Home prices in Washington, DC have remained stable over the past year, with the average home valued at $621,991. But while that might encourage some investors to buy property, Gore has a different view.
“The city has many laws and rules that make investing here difficult and more politically driven than fundamental,” he said.
Cleveland, Ohio
The average home value in Cleveland is just $109,453, according to Zillow data. Although this figure is well below the national average, house prices have increased by 8.5% over the past year. This could make the city an attractive place for new investors, especially if they don’t have the same amount of capital to invest.
But that doesn’t necessarily make it a good place to invest. For Simchi, the city’s declining population and high vacancy rates are major red flags preventing him from buying properties there.
*All average home values are according to Zillow.
More from GOBankingRates
This article was originally published on GOBankingRates.com: I’m a Real Estate Investor: 10 Places I Would Never Buy Property
yahoo
