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Where to Invest? Which Cities?

Should you follow everyone and invest in the hot appreciating markets the media and everyone talks about? The media has a much different approach in that they look at hot markets speculatively as ones that will appreciate, our approach is much different. I previously wrote on the topic where to invest and identified many smaller cities, the Midwest and OH as areas that hit on all 4 of my criteria: Little chance of depreciation, lots of available deals, low competition, multiple exit strategies. Here I will identify specific cities that have an oversupply of opportunity for savvy investors.


Probability of depreciation – If you haven’t heard of PMI, Private Mortgage Insurance, let me introduce you. PMI provides insurance to lenders to protect them from buyers who default. PMI also applies leading research, analytics, and pricing principles to manage risk concentration, and release a monthly market review and quarterly Market Risk Index report. The PMI U.S. Market Risk Index score translates to a percentage that predicts the probability that house prices will be lower in two years. Based on this report many of the hot areas during the boom such as CA, Vegas, FL, etc have a High probability of lower home values in 2 years. However, many areas of OH, TX and the Midwest have Minimal risk rank.

PMI US Market Risk Index
Risk Rank 1st qtr 2009 4th qtr 2008
Riverside-San Bernardino-Ontario CA

CA

High

99.9

99.9

Miami-Miami Beach-Kendall FL

FL

High

99.9

99.9

Los Angeles-Long Beach-Glendale CA

CA

High

99.9

99.9

Fort Lauderdale-Pompano Beach-Deerfield Beach FL

FL

High

99.9

99.9

Las Vegas-Paradise NV

NV

High

99.9

99.8

West Palm Beach-Boca Raton-Boynton Beach FL

FL

High

99.9

99.8

Orlando-Kissimmee FL

FL

High

99.9

99.6

Tampa-St. Petersburg-Clearwater FL

FL

High

99.9

99.7

Santa Ana-Anaheim-Irvine CA

CA

High

99.9

99

Phoenix-Mesa-Scottsdale AZ

AZ

High

99.9

98.8

Jacksonville FL

FL

High

99.9

98.9

Sacramento–Arden-Arcade–Roseville CA

CA

High

99.9

97.9

San Diego-Carlsbad-San Marcos CA

CA

High

99.8

97.2

Providence-New Bedford-Fall River RI-MA

RI

High

99.3

98.3

Detroit-Livonia-Dearborn MI

MI

High

98.8

86.3

Edison-New Brunswick NJ

NJ

High

96.7

89.4

Oakland-Fremont-Hayward CA

CA

High

96.4

80.7

Newark-Union NJ-PA

NJ

High

96

84.1

Nassau-Suffolk NY

NY

High

91.9

78.3

Washington-Arlington-Alexandria DC-VA-MD-WV

DC

High

91.7

88.2

Portland-Vancouver-Beaverton OR-WA

OR

High

89.8

66.4

Baltimore-Towson MD

MD

High

89.6

83.8

Virginia Beach-Norfolk-Newport News VA-NC

VA

High

89

77.6

New York-White Plains-Wayne NY-NJ

NY

High

87.8

67.6

Atlanta-Sandy Springs-Marietta GA

GA

High

80.7

55.8

Boston-Quincy MA

MA

High

79.5

56.6

San Jose-Sunnyvale-Santa Clara CA

CA

High

78.4

51.4

Minneapolis-St. Paul-Bloomington MN-WI

MN

High

74.5

58.5

San Francisco-San Mateo-Redwood City CA

CA

Elevated

66.2

31.6

Warren-Troy-Farmington Hills MI

MI

Elevated

57.9

23.6

Seattle-Bellevue-Everett WA

WA

Moderate

46

30.3

Milwaukee-Waukesha-West Allis WI

WI

Moderate

44.6

27.5

Cambridge-Newton-Framingham MA

MA

Moderate

40.6

27.3

Chicago-Naperville-Joliet IL

IL

Moderate

36.2

13.7

Philadelphia PA

PA

Moderate

30.3

27.5

Indianapolis-Carmel IN

IN

Low

28.8

9.6

Austin-Round Rock TX

TX

Low

28.1

17.4

Cincinnati-Middletown OH-KY-IN

OH

Low

27.4

12.1

Kansas City MO-KS

MO

Low

26.2

11.2

Denver-Aurora CO

CO

Low

21.2

14.2

Nashville-Davidson–Murfreesboro–Franklin TN

TN

Low

16.6

12

Charlotte-Gastonia-Concord NC-SC

NC

Low

15

5.7

St. Louis MO-IL

MO

Low

12.9

13.8

Fort Worth-Arlington TX

TX

Minimal

5.8

2.5

Dallas-Plano-Irving TX

TX

Minimal

3.8

2.5

Houston-Sugar Land-Baytown TX

TX

Minimal

3.7

2.7

San Antonio TX

TX

Minimal

2.8

3.8

Columbus OH

OH

Minimal

2.1

2.4

Pittsburgh PA

PA

Minimal

1.5

1.7

Cleveland-Elyria-Mentor OH

OH

Minimal

1.5

2.3

I am going to focus on markets with Minimal to Low PMI Risk Rank and that hit on my other 3 criteria. I did extensive research on 3 of the TX markets and it seemed a screaming deal on a foreclosure was 20% below market. While you may be able to find a great deal, I found the availability and competition to not be as favorable as some of the other markets. While the markets are very stable, the TX cities I am passing on but savvy investors can do very well. I found the same thing in NC, SC, Kansas City, Oklahoma City and Alabama. You can find good deals, but it is more difficult to find a great deal or that diamond in the rough. A great deal I consider to be around 50% LTV and rents are 1.5-3% of Total In (Purchase+Rehab). The markets I found to be overflowing with great deals and hit on all 4 criteria are Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis. You can cherry pick from incredible deals that have multiple exit strategies, tremendous cash flow, tremendous equity and you do not run into much competition. We have found deals around 50% LTV with rents of $1400 for only 60K. That is great cash flow and equity. Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis are the cities to invest in. Check out some current deals we have done in these areas with tremendous numbers here http://www.realreturnrealestate.com/index.php?option=com_content&view=category&layout=blog&id=57&Itemid=88.

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8 Responses to Where to Invest? Which Cities?

  1. David says:

    Hey, Ryan

    Very well written.

    Great Information.

    Thanks David N.

  2. Karl Tone says:

    Hello, thank you for the advice. Some great area to avoid as well as target. My interest is in areas where the “wealthy” like to vacation.

  3. Ryan Moeller says:

    You are welcome Karl. I found the information very useful and informative. There is a lot more that I look for to identify markets to target. We do not look for good deals, we look for great deals and wish to create systems and duplicate these great deals over and over. Happy Investing Karl!!

  4. Ryan Moeller says:

    Thanks David. I was blown away by the information. I find it difficult to trust the source and accuracy of the Media. Tough to use the information to make an informed business decision when their goal is to get ratings and they masage the truth to create fear and drama. PMI however insures mortgages and protects lenders in the case of borrower defaults, therefore they have to do a ton of research and I trust the source much better. You can still find deals in any market so while PMI’s Risk Index is useful, it is not the bible per say. There are still diamonds in the rough in every market, but I am targeting areas where I can find great deals consistently and cherry pick the best ones. Good luck with your investments David!!

  5. Wan Boykin says:

    HI, I am a new invertor. Your article is great and is very useful for out of town investor which I am looking into it as well. I always wonder how people do the out of town investing. I have not have my website build yet. I may need some help from you. Great information. Thank you

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