Posted by Ari on August 13, 2009 at 14:15:47:
I agree. Markets that have a lower PMI risk rank turn out to be better for long term. I currently have deals in Indianapolis, Dallas, San Antonio, and Charlotte. They do cash flow way better, but some markets won’t appreciate. I like cash flow way better anyway.
Where to Invest? Which Cities? - Posted by Ryan Moeller
Posted by Ryan Moeller on August 13, 2009 at 12:40:37:
Should you follow everyone and invest in the hot appreciating markets the media and everyone talks about? The media has a much different approach in that they look at hot markets speculatively as ones that will appreciate, our approach is much different. I previously wrote on the topic where to invest and identified many smaller cities, the Midwest and OH as areas that hit on all 4 of my criteria: Little chance of depreciation, lots of available deals, low competition, multiple exit strategies. Here I will identify specific cities that have an oversupply of opportunity for savvy investors.
Probability of depreciation ? If you haven?t heard of PMI, Private Mortgage Insurance, let me introduce you. PMI provides insurance to lenders to protect them from buyers who default. PMI also applies leading research, analytics, and pricing principles to manage risk concentration, and release a monthly market review and quarterly Market Risk Index report. The PMI U.S. Market Risk Index score translates to a percentage that predicts the probability that house prices will be lower in two years. Based on this report many of the hot areas during the boom such as CA, Vegas, FL, etc have a High probability of lower home values in 2 years. However, many areas of OH, TX and the Midwest have Minimal risk rank.
PMI US Market Risk Index
Risk Rank 1st qtr 2009 4th qtr 2008
Riverside-San Bernardino-Ontario CA CA
High
99.9
99.9
Miami-Miami Beach-Kendall FL FL
High
99.9
99.9
Los Angeles-Long Beach-Glendale CA CA
High
99.9
99.9
Fort Lauderdale-Pompano Beach-Deerfield Beach FL FL
High
99.9
99.9
Las Vegas-Paradise NV NV
High
99.9
99.8
West Palm Beach-Boca Raton-Boynton Beach FL FL
High
99.9
99.8
Orlando-Kissimmee FL FL
High
99.9
99.6
Tampa-St. Petersburg-Clearwater FL FL
High
99.9
99.7
Santa Ana-Anaheim-Irvine CA CA
High
99.9
99
Phoenix-Mesa-Scottsdale AZ AZ
High
99.9
98.8
Jacksonville FL FL
High
99.9
98.9
Sacramento?Arden-Arcade?Roseville CA CA
High
99.9
97.9
San Diego-Carlsbad-San Marcos CA CA
High
99.8
97.2
Providence-New Bedford-Fall River RI-MA RI
High
99.3
98.3
Detroit-Livonia-Dearborn MI MI
High
98.8
86.3
Edison-New Brunswick NJ NJ
High
96.7
89.4
Oakland-Fremont-Hayward CA CA
High
96.4
80.7
Newark-Union NJ-PA NJ
High
96
84.1
Nassau-Suffolk NY NY
High
91.9
78.3
Washington-Arlington-Alexandria DC-VA-MD-WV DC
High
91.7
88.2
Portland-Vancouver-Beaverton OR-WA OR
High
89.8
66.4
Baltimore-Towson MD MD
High
89.6
83.8
Virginia Beach-Norfolk-Newport News VA-NC VA
High
89
77.6
New York-White Plains-Wayne NY-NJ NY
High
87.8
67.6
Atlanta-Sandy Springs-Marietta GA GA
High
80.7
55.8
Boston-Quincy MA MA
High
79.5
56.6
San Jose-Sunnyvale-Santa Clara CA CA
High
78.4
51.4
Minneapolis-St. Paul-Bloomington MN-WI MN
High
74.5
58.5
San Francisco-San Mateo-Redwood City CA CA
Elevated
66.2
31.6
Warren-Troy-Farmington Hills MI MI
Elevated
57.9
23.6
Seattle-Bellevue-Everett WA WA
Moderate
46
30.3
Milwaukee-Waukesha-West Allis WI WI
Moderate
44.6
27.5
Cambridge-Newton-Framingham MA MA
Moderate
40.6
27.3
Chicago-Naperville-Joliet IL IL
Moderate
36.2
13.7
Philadelphia PA PA
Moderate
30.3
27.5
Indianapolis-Carmel IN IN
Low
28.8
9.6
Austin-Round Rock TX TX
Low
28.1
17.4
Cincinnati-Middletown OH-KY-IN OH
Low
27.4
12.1
Kansas City MO-KS MO
Low
26.2
11.2
Denver-Aurora CO CO
Low
21.2
14.2
Nashville-Davidson?Murfreesboro?Franklin TN TN
Low
16.6
12
Charlotte-Gastonia-Concord NC-SC NC
Low
15
5.7
St. Louis MO-IL MO
Low
12.9
13.8
Fort Worth-Arlington TX TX
Minimal
5.8
2.5
Dallas-Plano-Irving TX TX
Minimal
3.8
2.5
Houston-Sugar Land-Baytown TX TX
Minimal
3.7
2.7
San Antonio TX TX
Minimal
2.8
3.8
Columbus OH OH
Minimal
2.1
2.4
Pittsburgh PA PA
Minimal
1.5
1.7
Cleveland-Elyria-Mentor OH OH
Minimal
1.5
2.3
I am going to focus on markets with Minimal to Low PMI Risk Rank and that hit on my other 3 criteria. I did extensive research on 3 of the TX markets and it seemed a screaming deal on a foreclosure was 20% below market. While you may be able to find a great deal, I found the availability and competition to not be as favorable as some of the other markets. While the markets are very stable, the TX cities I am passing on but savvy investors can do very well. I found the same thing in NC, SC, Kansas City, Oklahoma City and Alabama. You can find good deals, but it is more difficult to find a great deal or that diamond in the rough. A great deal I consider to be around 50% LTV and rents are 1.5-3% of Total In (Purchase+Rehab). The markets I found to be overflowing with great deals and hit on all 4 criteria are Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis. You can cherry pick from incredible deals that have multiple exit strategies, tremendous cash flow, tremendous equity and you do not run into much competition. We have found deals around 50% LTV with rents of $1400 for only 60K. That is great cash flow and equity. Cleveland, Columbus, Cincinnati, Akron, Toledo, Indianapolis and Memphis are the cities to invest in.