Buying an Investment Property in 2018: Avoid These Locations

Buying an investment property is a major business decision many Americans make during their lives. With appropriate location, property search, financing, and management, an investment property generates positive cash flow, the number one indicator of success in real estate investing.

The most important factor in the success of rental properties is location, location, and location. We normally talk about the best places to invest in real estate when it comes to locations. Today, however, we’ll be going over the worst places to invest in real estate. Avoid buying an investment property in these areas at all costs!

Worst Places to Invest in Real Estate – Traditional:

We’ll separate the different cities into two categories: worst cities to invest in traditional real estate and worst cities to invest in Airbnb.

There can be many reasons why a location is bad for traditional rental properties. Low appreciation, high crime rate, bad economies, and subpar rental demand and rental supply are typical of the worst places to invest in real estate. Whatever the case, the end result is the same: the area is unprofitable. In 2018, there are 9 cities that fit this category: Polson, MT, Dothan, AL, Altoona, PA, Canton, OH, Moline, IL, Biloxi, MS, Goshen, IN, Los Lunas, NM, and Helena, MT. Whether because they have extremely low rental income or return on investment, these cities are the least profitable in the US. We recommend not buying an investment property for traditional investing in these locations.

1.) Polson, MT

Median Property Price: $523,111

Rental Income: $725

Cap Rate / Cash on Cash Return: 0.52%

2.) Dothan, AL

Median Property Price: $186,959

Rental Income: $736

Cap Rate / Cash on Cash Return: 0.52%

3.) Altoona, PA

Median Property Price: $170,873

Rental Income: $764

Cap Rate / Cash on Cash Return: 0.95%

4.) Canton, OH

Median Property Price: $155,420

Rental Income: $782

Cap Rate / Cash on Cash Return: 0.25%

5.) Moline, IL

Median Property Price: $124,147

Rental Income: $792

Cap Rate / Cash on Cash Return: 0.09%

6.) Biloxi, MS

Median Property Price: $241,359

Rental Income: $813

Cap Rate / Cash on Cash Return: 0.75%

7.) Goshen, IN

Median Property Price: $158,398

Rental Income: $790

Cap Rate / Cash on Cash Return: 0.85%

8.) Los Lunas, NM

Median Property Price: $241,291

Rental Income: $909

Cap Rate / Cash on Cash Return: 0.82%

9.) Helena, MT

Median Property Price: $317,175

Rental Income: $950

Cap Rate / Cash on Cash Return: 0.3%

Worst Places to Invest in Real Estate – Airbnb:

When it comes to the worst places to invest in Airbnb rental properties, the issue is not as simple. There are two reasons why some areas are not suitable for Airbnb: they are not profitable and they have legal issues.

Rental Income and Return on Investment:

Like traditional investment properties, there are areas where buying an investment property for Airbnb is not profitable. In 2018, these areas include Olympia, WA, Hampton, VA, and San Marcos, TX. However, since Airbnb generates more income than traditional real estate on average, these areas are not as unprofitable as their worst traditional cities counterparts. Regardless, these three cities have low rental income and return on investment. Buying an investment property in these cities would lead to no profit or even losing money.

1.) Olympia, WA

Median Property Price: $457,854

Rental Income: $1,167

Cap Rate / Cash on Cash Return: 0.03%

2.) Hampton, VA

Median Property Price: $209,473

Rental Income: $825

Cap Rate / Cash on Cash Return: 0.35%

3.) San Marcos, TX

Median Property Price: $373,614

Rental Income: $1,588

Cap Rate / Cash on Cash Return: 0.08%

Legal Issues:

Stringent Airbnb laws are what truly make certain areas the worst places to invest in Airbnb. These Airbnb laws can range from high property tax to flat-out illegality. Buying an investment property for Airbnb in such cities can be utterly pointless and tiresome. The worst cities for buying an investment property for Airbnb are New York, NY, San Francisco, CA, and Oakland, CA.

1.) New York, NY

Airbnb is essentially illegal in New York City. In late 2016, legislation was passed to prohibit the advertisement of a full home for less than 30 days. The properties in question cannot be single-family investment properties. The Airbnb situation in NY is complex, making the platform effectively illegal. It’s safe to say that traditional real estate investing is the default optimal rental strategy in New York City.

2.) San Francisco, CA

Luckily Airbnb is not illegal in San Francisco, but renting investment properties through the platform is extremely restricted. Hosts can only rent their property out for 90 days a year and must pay a 14% transient occupancy tax. Such restrictions make buying an investment property for Airbnb futile; the property can rarely be used, and with the high tax rate, it will likely be losing money more than making money in real estate.

3.) Oakland, CA

Buying an investment property for Airbnb in Oakland faces similar issues as in San Francisco. Hosts must pay a 14% transient occupancy tax on reservations that are 30 days or less. Unlike San Francisco, however, hosts have to pay a higher gross-receipts tax compared to hotels. These conditions make Airbnb in Oakland among the worst in the country.

Conclusion

Buying an investment property in any of the 15 cities mentioned in this blog will lead to losing money and possibly negative cash flow. To avoid these locations, use a property search tool. Mashvisor’s property search tool allows you to find an investment property in a matter of minutes. Using a real estate market analysis and rental property calculator, Mashvisor’s search tool will help you find the best real estate investment property based on your desired factors. Want to take the next step in becoming a successful real estate investor? Click here to start your 14-day free trial with Mashvisor!

Start Your Investment Property Search!

Biloxi MS Goshen IN Hampton VA Location Oakland CA Olympia WA San Francisco CA