The US is huge, so how do we decide where to build our investment properties?
Strangely it’s not as hard as you think, by the time you’ve eliminated places not to go there’s not that many choices left.
• We generally avoid areas too far north. The winter cold in these regions can significantly increase vacancy and/or maintenance costs. Likewise if you go too far south where it’s warmer but they can get beaten up by hurricanes.
• Too far west is into California where the weather climate is great but state taxes and compliance costs are not, and their high property prices push yields down.
• Same deal if you go too far east into New York where prices are high but CAP rates are not.
• Cities in decline or that have gone broke like Detroit.
• Mid-US states that get hit regularly by tornados. (tornado alley)
• Las Vegas?, not for us right at this time. Whilst prices are cheap and the climate is fine, Vegas lost many of its gamblers to Macau and is still trying to re-invent itself.
• Have an economic reason for being there. For example, Houston TX is the home of energy, space and medical research and has an attractive tax system for business and investment. Memphis TN is the transport hub for all east – west road, rail, air shipping across the US. Charlotte, NC is the banking capital of the US on so on.
• Stable employment, strong rental market (eg over 40% of Memphis TN rent, and 54% of Houston TX rent), affordable house prices relative to rents (ie rent/purchase price equals investment yield)
• Have several Fortune 500 Companies who are investing in infrastructure to create jobs and growth.
• Multi-billion dollar diversified economies. For example, Columbia SC’s GDP will hit $38 Billion in 2016. Obviously an economy like that can weather a few storms and still provide a safe haven for your investment properties.
When we look for US cities to invest in, there are a number of ‘essential elements’ we need to see. In particular, a stable and/or increasing population, city infra-structure, several fortune 500 companies, good employment stats etc. But most importantly, we want to see money being spent locally by the City, business and industry.
There are many US cities that meet this criteria, here are a few we particularly like: