Are Markets Like Texas & Florida Priced In? What Are The Best Metros Now Considering Growth & Supply?
Let's say you're looking to buy a single family rental or small multifamily in a high growth, relatively supply constraint market with high quality of life (considering weather, discretionary activities, etc), what areas would you look into? Everyone was screaming TX and FL for the past years, and although net migration is still strong for these markets, I wonder if the tide has shifted. TX has plenty of inventory (I might need to look into this on a relative basis to net migration) and is seeing a slow down in growth. FL might have a brighter future, but seems saturated with investors flowing in.
Looking at places where you can still find 3 bed 2 bath for less than 400k and rent can be around 3000-3500 a month (throwing per SF basis out to make it simple), there are a couple markets like Sacramento which I believe nationally has on of the lowest vacancy rate, but then again it's California.
I might be completely wrong as well so feel free to chime in, and do recognize that there has been slow downs all over the country, so I could just be biased. Any thoughts on Arizona, Utah & North Carolina? Any markets that no one is talking about that you think could be undervalued? Am I missing a specific submarket in states like TX and FL that has better fundamentals? Would it be better to just find a good deal in built out markets like OC, San Diego instead?
Diving into the current real estate landscape, it's clear that the markets in Texas and Florida have been hot topics for investors due to their strong net migration and economic growth. However, as you've pointed out, the influx of investors and potential saturation could mean that the most obvious opportunities in these states might not offer the best returns moving forward. Let's explore some alternative markets and considerations based on insights from the Wall Street Oasis discussions.
Secondary Markets Surrounding Core Markets: As highlighted in the discussions, secondary markets around core areas, especially in California like Sacramento, are showing promise. Sacramento, in particular, has one of the lowest vacancy rates nationally, making it an attractive option for investors looking for lower entry prices compared to the Bay Area with still reasonable rent potential.
Sunbelt Continues to Shine: The Sunbelt region, encompassing states like Arizona, Utah, and North Carolina, has been mentioned for its continued growth. These areas offer a combination of quality of life, economic growth, and relatively more affordable housing options compared to traditional hotspots. Specifically, cities like Phoenix in Arizona have been noted for their growth potential, with minimal supply constraints and a strong influx of people moving from more expensive states.
Exploring Under-the-Radar Markets: While Texas and Florida have been investor favorites, there might be specific submarkets within these states that still offer value. For example, areas within Texas that might have been overlooked due to the focus on major cities like Dallas or Austin. Similarly, smaller cities or suburbs in Florida that benefit from the state's overall growth but haven't seen the same level of investor attention could present opportunities.
Quality of Life as a Key Factor: Markets that offer a high quality of life, including good weather, recreational activities, and a strong job market, are likely to continue attracting residents. This makes them appealing for real estate investment, especially in the single-family rental and small multifamily segments. States like Utah and North Carolina, with their natural beauty and growing tech hubs, respectively, are examples of areas that tick these boxes.
Consider Built-Out Markets for Good Deals: While it might seem counterintuitive, looking for good deals in more established markets like Orange County or San Diego could still be a viable strategy. These areas might offer less in terms of yield but can provide stability and potential for long-term appreciation.
In conclusion, while Texas and Florida remain strong markets, diversifying into other areas with growth potential, quality of life, and relative supply constraints could offer better opportunities for investors. Markets like Sacramento, Phoenix, and certain under-the-radar areas within Texas and Florida, as well as considering quality deals in established markets, could provide a balanced approach to real estate investment in the current climate.
Sources: What Markets and Core sub markets do you think will experience rapid growth over the next 3-5 years ?, What US city will see the most residential appreciation over the next 15 years?, Depth of market and renter pool analysis, A Discussion on Interest Rates/Macro Fundamentals (Long OP)
South Florida (Brickell, Downtown Miami, West Palm Beach, Boca Raton), Tampa CBD, Atlanta CBD, and Nashville CBD seem to be the best. At least for Class A office investments. Texas is a bit challenging because Austin and DFW are slowing their growth rate recently. Houston probably still has upside, but it is costly and competitive to enter. Honestly, Miami is probably the #1 market in the Sun Belt. Tons of firms moving there, lots of job growth, diversified industries (entertainment, law firms, Fortune 500, travel, logistics, professional services, consulting, financial services, etc.) are there or are looking to be there. The caveat is it is now known that it is a hot market. Back in 2020-2022 when it was less sought out, you could’ve gotten better deals. These days everyone with ample capital to invest is ready to pounce. I would still pick Texas or Florida over Chicago, LA, NYC, or Boston any day of the week right now.
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