Success in real estate requires geographical prognostication — finding a city that’s not only a good buy now, but one that will grow your investment in the future. It’s not an easy skill to hone.
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“As I have seen in my years as a real estate agent, many buyers make the mistake of buying in cities that are not likely to bring them wealth,” said Zev Freidus, Realtor and founder of ZFC Real Estate. Many factors can make seasoned investors scratch locations off their shortlists.
“Small towns with high vacancy rates, stagnant job growth and poor infrastructure make bad investments for potential homeowners looking to build wealth,” said Freidus. “Cities where housing prices have remained relatively flat over the past few years are not good bets for buyers. These cities often have an abundance of vacant, aging homes and limited job opportunities. Large cities with sky-high home prices and high taxes should also be avoided when looking to build wealth. In these cities, it’s almost impossible to build significant equity over time without significantly increasing cash flow. Also, highly competitive housing markets can also be bad bets for those looking to build wealth. In these markets, buyers are forced to compete against one another as prices continue to rise, making it increasingly difficult to make a return on their investment.”
Every city on this list inhabits one or more of those traits, which should raise red flags for anyone looking to build wealth through real estate.
Hartford, Connecticut
Joel Efosa is the CEO of Fire Cash Buyers, which purchases and revitalizes fire-damaged properties — and he is not looking to put money into Hartford. “Despite its rich historical allure, the city has seen a significant increase in property taxes in recent years, which can erode potential profits for investors,” he said.
It’s not something to take lightly. According to the Connecticut Mirror, Hartford’s property taxes are by far the highest in the state and among the highest in the country. Commercial landlords there pay over 5% — higher than in New York City, Boston and Chicago.
“Additionally, its slow economic growth and high unemployment rate make it a risky bet for real estate investors,” said Efosa.
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Detroit
News has been spreading about Detroit’s noble efforts to overcome its legacy of depopulation and economic decline. Prices are still among the lowest in America, and if the Motor City is on its way up, that would make now the perfect time to buy, right?
Efosa thinks the jury is still out.
“While it’s true that Detroit has made strides in urban revitalization, the overall economic stability remains uncertain,” he said. “The city has high crime rates and low school performance, elements that can negatively impact property values and rental demand.”
Bakersfield, California
If you’re looking to make a move in the Golden State, Efosa advises against Bakersfield because of its lack of economic diversity.
“The city is highly dependent on the oil industry, which has seen significant instability in recent years,” he said. “This economic volatility has led to fluctuating property values, making it difficult for investors to predict returns.”
San Francisco
The pandemic-era tech exodus depressed home values in the notoriously pricey San Francisco housing market enough that formerly priced-out investors see a window of opportunity — but it might be an illusion.
“San Francisco is a beautiful and vibrant city, but it also has a challenging real estate market,” said Alex Locklear, Realtor and founder of NC Cash Home Buyers.
According to a report from RealEstateAgents.com, Bay Area real estate values are falling faster than anywhere in America — and there’s no indication that the bottom is anywhere in sight. A report from economic research firm Capital Economics predicts San Francisco property values will decline by 40%-45% between 2023 and 2025, making it the hardest-hit city in the study.
And that’s just one challenge.
“San Francisco is also a city with high taxes and regulations that affect your profitability and flexibility as a real estate investor,” said Locklear. “For example, San Francisco has a transfer tax that ranges from 0.5% to 3% of the sale price, depending on the value of the property. San Francisco also has strict rent control and tenant protection laws that limit your ability to raise rents, evict tenants, or convert units.”
Miami (and Most of South Florida)
“Condo King of Miami” Philip J. Spiegelman — who helped pioneer the “pre-sale” financial model behind the 1990s condo boom that transformed the city into an international real estate investing hotspot — knows Miami as well as anyone. Spiegelman, who deals in high-end properties and founded InterAmerican Global Realty, thinks the city and the region as a whole are mostly spent.
“The market here — particularly in the luxury sector — is wildly overheated,” he said. “And there are some very serious causes for concern — the local economy, infrastructure, and climate. It’s no real secret that South Florida’s boom of the last 30 years has never been accompanied by, shall we say, thoughtful planning on issues of long-term livability.”
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This article originally appeared on GOBankingRates.com: I’m a Real Estate Agent: 5 Cities To Avoid Living In If You Want To Build Wealth
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