Best Places to Invest in Real Estate in 2021

By The ArborCrowd Team
Feb 6, 2021

The COVID-19 pandemic had a significant impact on the real estate market in 2020, and that impact is likely to continue into 2021. In certain residential markets, more people are moving out of cities and into the suburbs, where there is lower-density housing and more outdoor space. In many cases, families need office space at home for both work and school. And with fewer people commuting, easy access to freeways and public transportation is less important for some buyers.

In the commercial and industrial real estate markets, some types of properties, like office buildings, retail stores, and restaurant spaces, have seen a steep decline in demand. Other sectors are doing well, including self-storage, last-mile distribution centers for online retail, and ghost kitchens, which are commercial kitchens that are designed to produce only takeout and delivery orders.

Resilience in the Multifamily Real Estate Market

As more Americans are renting by choice, multifamily properties are becoming more interesting to real estate investors. Many retirees are downsizing and moving to areas with more amenities close by. Young professionals are delaying the goal of home ownership — or dispensing with it altogether — as they focus their spending power on other aspects of their lives.

Although the COVID-19 pandemic has had an impact on multifamily real estate, the sector at large has shown resilience. Experts believe that the market could recover by early 2022 and demand could also increase as young adults move out of their parents’ homes and back into apartments of their own.

The Impact of COVID-19 on Urban Real Estate

Many big cities have been hit hard by the pandemic, reversing a decades-long trend of revitalization and population growth. The decline in tourism, cancellation of live events, and new work-from-home policies have had a major impact on cities, particularly commercial centers with a high cost of living, such as New York City, Washington D.C., and San Francisco.

However, many of these trends may be temporary. As vaccines are distributed and people begin to return to normal life, we may see a shift back to urban centers and collaborative working environments. And cities themselves may change — in fact, many municipalities are now increasing their support of popular amenities like public parks, designated spaces for pedestrians and cyclists, and expanded outdoor dining.

While it’s difficult to predict the future in these uncertain times, there are several markets across the U.S. that offer good potential opportunities for real estate investors. Here are some general principles to consider when evaluating different regions and cities as places to invest in real estate, as well as some specific cities that are worth looking into.

Economic and Market Factors to Consider

There are some key aspects of the local economy and real estate market to look for when you’re searching for places to invest in multifamily real estate.

  • High rental occupancy. When a location has high rental occupancy, that’s good news for landlords. If there aren’t many vacant homes and apartments available for rent in the area, then you won’t have to spend as much on marketing to attract desirable tenants, and your property will be less likely to sit vacant between tenants.
  • High job and population growth. Typically, job growth leads to population growth as more workers move to cities and towns where they have better professional opportunities. This means that the area will have a larger population of prospective tenants who need a place to live.
  • Increasing prices on homes for sale. Many parts of the country are experiencing a big increase in the demand for homes for sale during the COVID-19 pandemic. As a result, home purchase prices are rising, which means that some potential buyers are being priced out of the market entirely. As a result, many people who need or want to move are choosing to rent a home instead of buying one.

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Using Cap Rate to Evaluate Investment Opportunities

Looking at the cap rate, or capitalization rate, is another tool investors can use to evaluate potential returns and risk when investing in multifamily real estate. The cap rate measures a property’s annual unleveraged return in the first year of an investment by dividing the property’s net operating income by its market value.

You can learn more about cap rates in this article, where we explain how ArborCrowd’s team of underwriters uses them to evaluate potential investment deals in the midst of the COVID-19 pandemic.

However, keep in mind that properties with a higher cap rate are associated with higher risk. Depending on your risk tolerance and investment goals, you may be more comfortable investing in multifamily properties with a lower cap rate and correspondingly lower associated risk.

Real Estate Investment Opportunities in the Sun Belt

Over the last 70 years, the Sun Belt — otherwise known as the southern region of the United States that stretches from California to North Carolina— has become increasingly attractive to many Americans as a great place to live and work.

Many Sun Belt cities have business-friendly policies that are attracting more companies to establish bases there. And in turn, those companies are attracting more young professionals and other workers. Given the low cost of living and warm climates of many Sun Belt cities, these areas have the potential to remain strong markets for multifamily and commercial real estate investing. Find out more about the Sun Belt region and why it’s an appealing option for many real estate investors.

Real Estate Investment Opportunities in 18-Hour Cities

Economists describe 18-hour cities as growing, mid-sized cities with attractive amenities. Here are a few common characteristics that 18-hour cities share:

  • Higher-than-average population growth
  • Lower cost of living than first-tier cities like New York City and Los Angeles
  • Public services and job opportunities that are on par with first-tier cities
  • Vibrant culture, access to recreation, and solid infrastructure

With plentiful professional opportunities and a lower cost of living, 18-hour cities are especially attractive to millennials who are just starting out or looking to advance in their careers. Established companies and entrepreneurs are also drawn to 18-hour cities because of the availability of young talent.

These 18-hour cities are worth looking into if you’re thinking about investing in residential or commercial real estate:

  • Austin, Texas
  • Charlotte, N.C.
  • Denver, Colo.
  • Nashville, Tenn.
  • Portland, Ore.
  • Raleigh / Durham, N.C.
  • Salt Lake City, Utah
  • Seattle, Wash.

References:
Multifamily 2021 U.S. Real Estate Market Outlook (CBRE)
Emerging Trends in Real Estate® 2021 – US & Canada (PWC)

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