Unless you’re psychic, there is no way to know the exact future of the real estate market. However, while you may not be able to know the future, there are numerous ways you can analyze the past and make some educated assumptions as to the future of the real estate market. For example, understanding the worst places to invest in real estate can help you increase your chances of success in the real estate market. Let us first begin by discussing the factors that affect the real estate market. Knowing these factors will help investors to better comprehend which places to invest in real estate and which places to avoid.
Related: Best Places to Invest in Real Estate in 2017
Factors that affect the real estate market
1. The economy
The strength of the overall economy significantly impacts the real estate market as consumers’ ability to support housing prices greatly depends on key factors like unemployment and income growth. The state of the economy plays a huge part in the amount of money that is available for people to buy homes. Factors such as politics and natural gas and oil production contribute to the state of the economy and, in turn, the real estate market.
2. Interest rates
Politics, banks and the global economy can all influence the real estate market when it comes to interest rates. This is a key factor in how mortgage rates are established because it sets the cost for banks to borrow money. Lower interest rates typically lead to lower mortgage rate offers from banks; this decreases the monthly mortgage payments a home-buyer must pay for a given mortgage amount. The smaller the monthly payment, the more “affordable” a loan is to potential home-buyers; this fact can increase the loan amount for which home-buyers are likely to get which might drive up property prices.
3. Demographics
Knowledge of demographic factors such as age, race, gender and median income of a particular area will help you expect future market trends and better position your homes for sale. Knowing whether an area is home to an aging population or is attractive to young families better prepare you to show the neighborhood to the appropriate buyer.
4. Property location
“Location, location, location!” We’ve heard this phrase on and on, but what exactly does it mean? Location is something that translates to some key factors that impact your life and lifestyle such as, quality of local schools, proximity to local employment opportunities and proximity to social environment and shopping centers. These three preferences, proximity to school, work and entertainment/shopping are a trio that makes for immensely valuable property.
Related: Buying a Rental Property in the City vs. Suburbs
Knowing the factors that affect the real estate property is the first step to crucially finding the right places to invest in real estate. Of course finding the right place to invest isn’t always easy, so you need to know first the wrong places to reach to the right places. Understand the worst places to invest so you can avoid them.
Worst places to invest in real estate
Pueblo, Colorado
Pueblo real estate has always experienced a bumpy ride when it comes to attracting new investors. Pueblo is known all around the country for its high crime rate and despite its beautiful architectural landscape and natural serenity; it is a place that real estate investors should avoid. The cost of housing in Pueblo is unbelievably low. A nice house in a nice neighborhood can be purchased for under $200,000 and you can buy a nice older home in a decent neighborhood for under $100,000. And by “decent” I mean not so decent! The majority of the houses in Pueblo are sold to real estate investors in low conditions forcing the buyers to spend more money on fixing up the property than actually benefiting from it. Another negative aspect of Pueblo is that it lacks a great deal in modern amenities, which is a big issue for the residents living there. This place is definitely one on the worst places to invest in real estate.
- Unemployment rate: 20%
- Job growth: 0.85%
- Population growth: 0.65%
- Increase in home values: 6.2%
- Years to pay off a single-family home: 6.56
- Crime rate: 75.54% per 1000 residents
Anchorage, Alaska
In Anchorage, selling more expensive homes is getting harder. More listings, slower sales and flat prices in Alaska’s largest city are apparent across the housing market. Houses are staying at an average of 50 days on the market, showing the apparent slowdown of houses sold in that city. Anchorage suffers from low employment rates and decrease in population as well, greatly affecting Anchorage’s real estate market. Home prices are very high in this city, and it would take almost 14 years to pay off owning the property’s value, making this city one of the worst places to invest in real estate and own an investment property.
- Employment growth: 0.50%
- Population growth: -0.55%
- Increase in home values: 2.3%
- Years to pay off a single-family home: 13.81
Honolulu, Hawaii
Hawaii real estate market is known for its extremely high home values, this means it takes double if not triple the amount of years to pay off your property’s value. Studies have shown that it would take more than 35 years to pay off the value of a single-family home in Honolulu. Another turnoff factor for this city is that cash is required upon purchase on any property. It is generally very difficult to obtain financing to purchase the property interest, particularly these days. This usually means that the asking or negotiated price of the leasehold interest must be paid for in CASH. Depending on the location, size and condition of the particular property, this can be a significant amount. This city is perfect for spending your summer vacation, but it’s one of the worst places to invest in real estate!
- Employment growth: 2.2%
- Population growth: 0.65%
- Increase in home values: 1.3%
- Years to pay off a single-family home: 36.29
Choosing the location for your real estate investments is the most important step for every investor. You can change the size of your home or improve the quality of it; the one thing you can’t change is the home’s location. That is why investors need to know where the best and worst places to invest in real estate are. Mashvisor provides a list of a variety of the best cites to invest in real estate. Always remember that if you start off right you will rapidly increase your chances of success. So start of by choosing the right location!