Real estate investors can be influenced by the media hype and we are here to tell you, be wary of the one horse town real estate wise! There are markets such as Detroit that have been highly sought after for cash flow. “Target market, foreign investors”. The numbers look great on an investment in Detroit and it is fun to speculate on how much lower the prices can get. All great emotional indicators, right?
For real estate investors, your number one question should always be, “What is the economic engine that drives this town”? Forbes magazine recently published an article that states Detroit (a cash flow market) has been the country’s worst housing market in the past 10 years. The second worst is Las Vegas (known as an appreciation or a growth market).
Detroit and Las Vegas are two extremely different cities. In fact, I can only arrive at a single thing they have in common – they are both “one horse towns”, meaning that they derive their economic engines from one income only. Having only one industry is a sign that real estate investors might be looking at trouble ahead.
Detroit’s Investment Real Estate Landscape
The economic engine that drove Detroit was the auto manufacturing industry. As the manufacturing facilities started to relocate to other markets, such as the Southern United States and oversees, Detroit’s economy took a massive down turn. This, of course, triggered losses to home values and millions of dollars lost in appreciation and equity to the homes.
I trust someday the economy in Detroit will rebound. What makes it a safe place to invest is enough diversification in the economy to sustain an industry that may go bust. Local government is working toward this goal (this is a hint!) When investing, watch to see what are the local governments goals and strategic plan for the communities, or do they even have one?
Las Vegas’ Investment Real Estate Landscape
The gaming industry was the mega machine that drove Las Vegas. In fact, Las Vegas during the boom years has had the fastest growing appreciation to home values in the country. When the economy took a turn for the worst, the housing market crashed harder there than anywhere else. This created massive losses in cash flow and equity that the investors who purchased were hoping to gain with the growth the city was experiencing. Fortunately this mega industry is still in the city of Vegas and it will eventually rebound as well. What Vegas needs to rebuild and sustain its housing market is the same as Detroit. Diversification to the business community.
Signs For Real Estate Investors To Watch
Diversification in the economy is paramount to successful real estate investors. To have sufficient diversification in employment, it is imperative to have a city large enough to accommodate the various businesses. So another hint, watch for larger cities such as a population of a million plus people!
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