AMA - Which Market

I'm trying to narrow down to 1-2 focus markets for buy-and-hold SFR/small multi-family investments. I've come down to the following options and am curious about any feedback:

1. Huntsville, AL

2. Memphis, TN (high crime)

3. Charlotte, NC

4. Omaha, NE (steady but not super growth oriented)

5. Columbus, OH

6. Atlanta, GA (already overheated market)

I like all of these markets from a population / job growth perspective and affordability as a new investor.

I'm curious about any major positives / negatives about these markets I might be missing - high crime, new employers, high poverty levels, etc.

Kerry,

This is a great question. I’m a believer in the laws of supply and demand. But it’s more than just demand that matters. I’m talking about demand and ability to pay. The current job market turmoil puts a big question mark around ability to pay. For now, millions of people are collecting unemployment benefits. But it’s unclear how long those benefits will be in place. At some point, the weakness in the job market will cascade into the financial markets, which may precipitate a shortage of lending. The last time we saw this was 2008. The cause was different, but the effect is likely to be the same.

There are several considerations you want to examine.

1) The partnership and the team.

2) The city. Is it attracting jobs.

3) The micro-market. Real Estate is always hyper local. Some neighborhoods maintain value while others don’t.

4) The asset class

5) The deal structure. How much debt is on the property.

Personally, I like Huntsville because it has a strong jobs story with the auto sector having selected Huntsville for manufacturing. There is a history of technical expertise in both radio and military R&D centers. The drawback, is that the rent per square foot in the market is low, averaging at about $1.10. While there is a shortage of rental housing, there doesn’t seem to be much upward pressure on rental rates, which is keeping new supply from coming into the market.

I personally would stay away from Memphis. It’s a tough market and you need expert property management to make money in Memphis. I know several investors who own property in Memphis, and it’s got more risk than I’m comfortable with.

Charlotte NC is a growing city and has attracted a several financial institutions. It’s emerging as a banking center in the South. It’s not very high priced, but overall it has good fundamentals. It’s hard to say what the impact of the current economic downturn will be on Charlotte. I simply haven’t researched it. Charlotte is definitely worth a closer look.

I don’t have an opinion on Omaha. I simply haven’t researched that market.

Columbus Ohio is likely to suffer from its higher than average exposure to retail in the current economic conditions. Columbus is also a financial and insurance center in the middle of the country. Overall, Columbus has been one of the fastest growing cities in the country for a number of years now. It’s definitely worth a closer look.

Atlanta is also a growing city. But like any city it has a lot of areas. Some that I would not consider investing in, and others that are growing.

But before choosing a city, I would focus on finding a team to work with. Having the right people on your team, is more important than choosing the city.

I would also be patient about investing right now. There will be opportunities to buy properties at a deep discount to the market. This will take some time. We currently have a moratorium on foreclosures. That will eventually be lifted. Much like the period following the 2008 recession, the opportunities took years to materialize. The best years for finding deals were 2010 and 2011. It took a while for the deals to show up, and I believe that will be the case this time around too