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The 5 Worst Markets for Real Estate Investors

by Emily Koelsch
Worst Markets for Real Estate

The 5 Worst Markets for Real Estate Investors 

Investors looking to buy their first rental property or expand their real estate portfolio should be strategic about selecting markets. We always encourage investors to buy properties close to home because it makes it easier to be a self-managing Landlord

That said, this isn’t possible for all investors. The entry prices in some markets are so high that investors are forced to look out of state for properties that will meet their long-term goals. When looking out of state, it’s important to do plenty of rental market research, understand local markets, and thoroughly analyze deals. 

Creating a list of “the best” and “the worst” markets for investors is always tricky because each investor has different goals, resources, skill sets, and comfort levels with risk and headaches. 

Nevertheless, to help you find the right market for your investing goals, here are (1) some factors we looked at to analyze rental property markets and (2) a list of five markets that investors should be cautious about entering. 

Factors to Consider When Analyzing Rental Markets 

Investors should do in-depth research into a market before investing in real estate there. There are several factors to consider to get a sense of the short and long-term health of an area. We recommend analyzing: 

  • Economic and employment growth 
  • Population growth
  • Property values 
  • Demographic trends 
  • Rental demand
  • Vacancy rates
  • Taxes 
  • Capitalization rate 

In addition, it’s helpful to be aware of any nationwide trends that impact real estate markets. Right now, there are two steady shifts that investors should pay attention to: 

  1. People are leaving big cities with a high cost of living and high entry points for housing; 
  2. People are moving to sunbelt cities with strong economic growth and affordable quality of life. 

5 Cities Real Estate Investors Should Be Wary Of 

Given the above trends and factors, there are five cities that we encourage investors to avoid or be cautious about entering. Here’s a look at each of those cities and the reasons we’re hesitant about each market. 

  1. New Orleans, Louisiana. New Orleans is a high risk for hurricanes and natural disasters, which impacts investors’ insurance costs and long-term investing strategy. In addition, the city’s population growth and employment growth have been stagnant in recent years. The area’s industry does not show positive signs of growth or indications of long-term stability. U.S. News & World Report recently ranked 49/50 for economic conditions and 46/50 for employment growth and health.
  2. Chicago, Illinois. Chicago has seen a steady population decline over the past decade. In addition, there has been little employment growth, and home appreciation values have been lower than in other major cities. These factors, combined with the state’s high property taxes, raise red flags for investors.
  3. New York, New York. New York’s high rental prices and demand often make it look attractive to investors. However, the high entry price makes it difficult for investors to enter the market for the first time. To compound issues, rental prices are declining, there are above-average rental regulations, and property taxes make it a difficult market for investors.
  4. San Francisco, California. There are lots of good things to be said about California real estate, but San Francisco can be challenging for investors. The median home price is around $1.6 million, making it too expensive for many investors. The high entry point and strict rental regulations make it a difficult place to be a Landlord, especially for new investors.
  5. Detroit, Michigan. Detroit is a city that regularly appears on lists for the best place to invest and the worst place to invest. We’re putting it among the worst for a few reasons. While the last two years have seen slight population growth, the city’s population has steadily declined over the past 60 years. Detroit has more real estate inventory available than most U.S. cities, which makes it affordable to buy in the city. That said, it also raises concerns about appreciation and the ability to sell properties in the future. Concerns about market stability and increased rental regulations make us hesitant to jump on the bandwagon advocating for buying rentals in Detroit.

Tips for Growing Your Real Estate Portfolio

If you’re looking to expand your real estate portfolio, the key is doing plenty of research. The reality is there are deals to be had in all markets. Investors should identify their investing goals and then find a market that helps meet those goals. 

Once you’ve found an investment property that works for you, we can help you get the most out of it. We’re the partner every self-managing Landlord needs. 

We have tenant screening services, state-specific Lease Agreements, and over 500 property management forms. Join our community today to get the most out of your real estate investments.

 


Emily Koelsch, ezLandlordForms Contributing Writer

Emily Koelsch WriterEmily Koelsch is a freelance writer and blogger, who primarily writes about business, real estate, and technology.

 


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