“That one’s owned by a California investor. That one…an investor friend of mine from Chicago…That’s a 150 unit owned by a Florida investor group.”… While touring multifamily properties with a real estate broker in Dallas a few years ago, I realized why the rich get richer.
The area we were touring was full of properties acquired by out of state investors who lived in wealthy cities. They needed to get their money working for them more than they could in the state in which they lived. This is not just a trend that is exclusive to the United States, but globally as well. It’s the reason why U.S. investors have invested in Asia and India for the last 20 years…the returns achievable by investing in these areas is much higher than what can be generated locally.
The rich get richer because, among other reasons, they are focused on getting their money working hard for them by investing it in real estate markets that are experiencing high job and population growth.
Although there are exceptions, today you have investors from the wealthiest cities in the United States investing in cities that I call “developing markets”… These are generally newer cities that will experience above average job and population growth and will continue to do so for the next twenty years.
In the map above the states highlighted in red are states that are forecasted to experience lower than average job and population growth, have higher than average cost of housing and/or have unattractive price-to-rent ratios. Though there are exceptions (San Francisco for appreciation potential), these are states that are generally not attractive for investment potential. The states in green are forecasted to experience higher than average job and population growth, have lower than average cost of housing and attractive price-to-rent ratios (high cash flow potential). These are poorer states, but their economies are grow thing quickly and therefore they have strong investment potential.
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Alegria Capital Management is a real estate investment management company that manages funds invested in quality residential real estate in high-growth markets nationwide.
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