Dave:
Hey, everybody. Welcome to On The Market. My identify’s Dave Meyer. I’ll be your host as we speak, joined as we speak by Kathy Fettke, James Dainard and Jamil Damji. How are all of you?

Kathy:
We’re all sick, woo-hoo. It was an incredible occasion.

Dave:
Each single one among us is sick. I believe we’re going to have plenty of muting of microphones.

Jamil:
I may need to take duty for it.

Dave:
It was Jamil’s fault apparently, however I wasn’t even on the occasion and I’m sick too, so I don’t know.

Jamil:
Properly, that’s as a result of we mailed it to you.

Kathy:
Oh, yeah.

Dave:
Properly, thanks. I recognize that. I actually recognize you in together with me. It’s very considerate. Properly, I really wasn’t on the occasion, however I did get to do one thing very enjoyable, which was I used to be in Madrid, Spain and I received to satisfy in individual the complete crew that edits this podcast, all of them dwell in Madrid. I don’t even know in the event you guys know that.
However I went to go hang around with them they usually’re extraordinarily cool, enjoyable folks. They took me on a 10-hour tour of the within of many bars in Madrid and I simply wished to offer a shout out to Joel, Eliezer, Alexander and Anna, who’re an extremely proficient crew. It was a pleasure to satisfy them and I had plenty of enjoyable with them. Very proficient, passionate individuals who make this present doable. That was actually cool for me and I simply wished to inform you guys about it.

Jamil:
Wonderful. I had no concept that they had been in Spain, however now now we have to make a visit on the market and go hang around.

Kathy:
Seems like now we have to.

James:
Are they sick of our voices but?

Dave:
No. They had been making enjoyable of me the entire time. They’re like, “I really feel like I’ve to place a body round your face. That’s what I’m used to seeing you want. It’s bizarre seeing you.” No, they’d love that. We must always try this subsequent time. Kathy, subsequent time you’re in Portugal, simply pop over to Madrid. It’s not far.

Kathy:
April.

Dave:
All proper.

Jamil:
Did anybody say to you that you simply’re taller than they anticipated?

Dave:
No, most likely mentioned shorter figuring out me.

Jamil:
I all the time get, “Oh, you’re thinner than I anticipated you to be.” I don’t know the best way to take that. I’m like …

Dave:
Properly, they had been most likely already considering you’re very skinny and muscular, so even thinner.

Jamil:
I get, “You’re thinner than I believed,” and, “Your beard doesn’t look as horrible in individual because it does on video.”

Dave:
What?

Kathy:
No one says that to you.

Dave:
Who thinks your beard seems horrible?

Jamil:
I don’t know, man. The Web is enjoyable.

James:
Properly, let me see. I can’t even develop a beard.

Jamil:
That’s what occurs whenever you’re one of many America’s finest traders and also you’re solely 12, James.

Dave:
That’s like one of many BiggerPockets podcast headlines like, 150,000 models by 12 years outdated, that includes James Dainard.

James:
Revenue and puberty.

Dave:
That might be your BP e book pitch, James.

James:
I believe I’m going to jot down that down.

Dave:
All proper, nicely let’s get to as we speak’s episode. As we wind down the yr, we wished to recap and form of return to truly one of many first exhibits we did, which we had been choosing finest markets, worst markets. And so as we speak, we’re going to speak about our predictions for the most effective and worst markets for 2023.
However earlier than we do, Rocket Mortgage, one of many greatest mortgage firms within the nation, simply got here out with their rankings of the highest 5 markets for 2022. I need to throw these on the market and see what you guys take into consideration these earlier than we get into our predictions for subsequent yr.
They mentioned the quantity 5 was Charlotte, North Carolina. Did any of you choose them final yr? I really feel like somebody may need.

Kathy:
I did.

Jamil:
Oh, you probably did?

Kathy:
Didn’t I?

Jamil:
Why do I really feel like-

Dave:
No, Jamil. You had Austin in Denver. I keep in mind that particularly.

Jamil:
Austin and Denver, that’s proper.

Dave:
As a result of the ultimate was simply you towards your self.

Jamil:
Yeah. Charlotte?

Dave:
It’s Charlotte. Do you make investments there, Kathy?

Kathy:
Yeah.

Dave:
How did it do that yr?

Kathy:
Properly, it received very costly this yr, so it grew to become troublesome to purchase this yr. However in the event you purchased earlier than this yr, you probably did nice.

Dave:
Good. Then quantity 4, now we have at Nashville, which is form of, I really feel like perennially on everybody’s checklist of prime markets. Then we had Raleigh, quantity three. Tampa, which I mentioned, however received voted out early for quantity two, and Austin for primary, which I used to be form of confused by. I believe that’s really what gained in our competitors final yr. However would you guys suppose Austin was the most effective performing market this yr?

James:
I imply in the event you take a look at these first two quarters in all these tech markets, they jumped so excessive. It’s like they’d room to tug again and it was nonetheless going to be good. I imply, Scottsdale was form of like that too. It was like Scottsdale, Austin, Seattle, LA, San Fran. They only shot up.

Dave:
Properly, that’s an excellent query, James. You’ve been fairly trustworthy about pullbacks in Seattle in your market, are they nonetheless up significantly over pre-pandemic ranges costs in Seattle?

James:
Oh yeah. We’re considerably up from pre. I imply we’re nonetheless 5% up on this yr in Seattle, however we had been up 25% to 30% and there’s first two quarters. I do know there was one month alone I used to be seeing some cities recognize at 25% in a single month. It was loopy. I needed to triple test the info. I used to be like, wait, what occurred? The median residence value jumped 25% in a single?

Dave:
That’s like a crypto coin.

James:
Yeah. I imply we’re nonetheless no less than 30% up from 2020 or 25% to 30% in sure neighborhoods for positive. And so there’s nonetheless speedy development. It’s simply sliding again with the affordability proper now.

Kathy:
Yeah, I imply that was form of my remark final yr is that it is a leveling out of a loopy manic pandemic-induced shopping for spree of final yr. And so with so many issues, once we see layoffs, once we see residence costs coming down, it’s actually simply evaluating to an irregular yr. And so in the event you might maintain that in thoughts and possibly simply examine numbers to 2019, individuals who purchased in markets that actually went up and at the moment are coming again right down to earth, in the event that they purchased this yr, they could be feeling slightly ache. However in the event you purchased earlier than that, you’re high-quality.
Should you maintain it, you’re high-quality. It’s simply anytime it’s important to promote, in the event you’re compelled to promote when it’s not good timing to promote, then that may be painful. However in the event you can maintain, normally these scorching markets come again they usually change into scorching once more.

Jamil:
I really feel like in the event you purchased a home within the peak time of 2022, it’s form of like a type of nights you bought actually drunk at a celebration and issues didn’t end up the way in which that they need to have and also you need to neglect it. And in order that’s principally what occurred.

Dave:
Is that this what occurred at your occasion final weekend, Jamil?

Jamil:
Possibly.

Kathy:
I left in time.

Jamil:
Hear, all of us have the identical illness, and the way that occurred …

Dave:
I don’t know the best way to comply with that up.

Jamil:
I placed on an excellent occasion although, guys.

Kathy:
That was an excellent occasion.

Jamil:
Let’s be actual.

James:
You realize what? Everybody ought to go to Jamil’s meetups and events. They’re probably the most enjoyable issues for actual property I’ve been to. It’s like, it’s a vibe that’s nothing I’ve seen at an actual property convention earlier than or meetup.

Kathy:
I’m signing up.

Jamil:
All proper, nicely undoubtedly test these out.

Dave:
Okay, nicely let’s take a break now as a result of, Jamil, you threw me off. Let’s take a fast break after which we’ll come again and discuss our predictions for 2023.
All proper, let’s bounce into our predictions, however earlier than I ask you which ones markets you really picked, can we discuss rapidly about what standards you all used? We’re going to do our worst markets first and when Kailyn and I assigned you these, we didn’t actually give definition what worst means. I’m curious, Kathy, what did you interpret that as? What did you suppose? How did you select the market you selected?

Kathy:
I needed to actually give it some thought as a result of with actual property, you will get tremendous confused. There’s a lot information coming from so many alternative angles and everyone’s received an opinion and that’s 100 X yearly as increasingly folks get into the business. It may be very complicated. I simply needed to cease and say, for what? The worst marketplace for what?
For me, my shopping for field, principally what I’ve all the time regarded for are areas that money movement with the hope of appreciation as a result of there’s one thing occurring in that space, there’s development. And so I don’t want it to go up in value dramatically immediately. I simply need it to over time in order that I do know that I’m getting money movement and appreciation as a result of the double whammy is what can actually make you rich.
For me, the worst market I selected was Detroit. Now Detroit got here up on some lists as an incredible marketplace for 2023. Once more, it simply depends upon your purchase field. I’m positive there’s Detroit traders listening who’re like, “Should you make investments the way in which I make investments, you’ll do nice in Detroit,” as a result of there’s a lot occurring and apparently has had a number of the highest millennial development there. There’s plenty of revitalization occurring downtown. Among the issues I search for are there.
The explanation I select it because the worst for me is that they’ve had a inhabitants decline over many years. Yeah, many years. Detroit has seen a 61% lower in his inhabitants for the reason that ’50s. It was once actually fairly like a New York form of metropolis, very talked-about metropolis, however persons are leaving they usually’re going to put on my favourite market. One in every of my finest markets is hotter climates, the Florida space. No, I didn’t inform you the place in Florida, however heat climates with landlord pleasant legal guidelines. This suits the purchase field for me.
If I’m searching for purchase and maintain, money movement, appreciation and development, I need to be in an space the place there’s job development, inhabitants development, infrastructure development, lease development, all these issues. We’re not seeing it. However the greatest motive that I wouldn’t put money into Detroit is that they’ve this legislation, and it’s a powerful legislation, and I do know it nicely.
In Could of 2017, town of Detroit introduced its intention to implement a citywide effort to implement more durable rental ordinance guidelines on landlords. Landlord guidelines actually matter. Mainly, you will get massively fined relying on which manner you take a look at it. For renters, that is nice, it implies that landlords need to deal with their properties and make things better. However in the event you’re not conscious of that, you will get actually caught.
We’re attempting to promote three Detroit properties in our former fund. My final single household rental fund, we’re down to a few Detroit properties that we’re having a very powerful time promoting. We will’t get the tenants out as a result of landlord legal guidelines are actually not in our favor there. The town is available in and inspects and tells us all these items now we have to repair. These fixes are costing rather a lot, $40,000 to $50,000. These are properties we solely owned 5 years and we mounted them 5 years in the past. They’re older. Should you’re shopping for an older property in Detroit, you simply need to know that town inspectors might cost you.
For me, this isn’t a finest marketplace for me, it’s a worst marketplace for me. I do suppose in the event you go in and you will get an incredible deal and also you utterly renovate it and also you’ve received the finances for it and the reserves, you could possibly get nice money movement. I simply don’t suppose that you simply’re ever actually going to see that market recognize the way in which I prefer it to do in different markets.

Dave:
All proper. Detroit is our first worst metropolis. I do know the previous CEO and founding father of BiggerPockets, Josh Dorkin, would undoubtedly agree with you. He made a repute of hating on Detroit for a lot of generations.

Kathy:
I used to adore it. I used to take a position there and our fund purchased a bunch of properties there they usually money flowed the entire time in the course of the fund. They had been fantastic for money movement. It’s simply whenever you’re attempting to get out or if town is available in and tells you to do a bunch of labor you weren’t anticipating to do. You simply need to have tons and much and much and many reserves for older properties.

Dave:
Kathy, it’s an incredible level. Two or three years in the past, I did this information evaluation to take a look at appreciation versus money movement for markets and I plotted them out. Mainly, what we noticed was that earlier than the pandemic, most markets had been both actually good appreciation or actually good money movement and there have been just a few that had been each, however they had been modest for each. The outliers for good money movement like Detroit had been additionally outliers for dangerous appreciation.
And so that you noticed the opposite factor too. An outlier for appreciation like Seattle was additionally an outlier for dangerous money movement plenty of the time, simply on common. For the reason that pandemic began, all that received thrown out of the window and everybody has simply seen each. However I do suppose as we go into 2023, we’re going to start out going again to that standard form of bifurcation out there the place some markets are actually good for money movement however don’t recognize actually and vice versa. Some will proceed to understand however aren’t going to be locations the place you possibly can simply discover rental properties that meet the 1% rule, for instance.
And so, it sounds such as you agree. Detroit could be good for money movement, however appreciation most likely not going anyplace.

Kathy:
Yeah, I believe it’s actually essential to take a look at how efficiency was earlier than 2020. I do know plenty of these cities have actually redefined themselves within the final decade, however in the event you take say 2015 to 2019 and actually take a look at the cap charges and what was occurring in these markets appreciation-wise, these had been good stable years for actual property. That will probably be a greater metric for the place we’re headed in 2023, I believe.

Dave:
All proper, nicely there we received one. James, how did you strategy this and what metropolis did you choose?

James:
I picked form of a unique metropolis. I spent plenty of time researching all these markets and I’m like, you already know what? I’m going again to the market that I had the most important remorse of not shopping for in 2009. And so I picked San Diego, California. The explanation I picked San Diego is, A, and this has nothing to do with what we’re going via now as a result of it’s a unique factor, however I keep in mind in 2009, the sky-rise condos went right down to below 400 grand. This stuff had been such as you’d be up killer views, model new, and you could possibly purchase them for below half million {dollars} they usually had been buying and selling for over one million earlier than the mortgage business exploded.
However the motive I picked San Diego is I do suppose, A, I believe San Diego is the most effective metropolis on the West Coast. It’s the place you need to dwell for positive, however the issue is the earnings is simply not there and what folks can afford within the job market. It’s a very good place to maneuver to when you have cash, but when not, you’re going to wrestle with plenty of the pricing round there.
And so what we’ve seen with the rates of interest rising is the charges, we’ve already seen it go from a medium residence value down over 10%. There’s been a drop from about 950 down 850. We’ve seen one thing very attention-grabbing to observe for and these are the markets I’m most cautious in proper now are those that’s hockey stick up in that first two quarters at a loopy charge. San Diego undoubtedly hits that. In March, they had been up 30% they usually had been one of many prime three appreciating markets for that month. It has retracted again 20% from March and it’s persevering with to slip proper now.
I believe plenty of the rationale that they’ve retracted again is the mathematics simply doesn’t fairly make sense. Additionally, rents have dropped 5% since March as nicely. I do suppose the rents are falling as a result of extra the distant work. Why wouldn’t you need a distant work in San Diego in the event you might? That’s the place I’d need a distant work. And in order the workforce goes again to the place they’re purported to be working, all these items are beginning to carry it again.
Through the pandemic, residing in a top quality place was a giant concern for most individuals and San Diego’s top-of-the-line you may be in. And so I believe persons are simply beginning to go away slightly bit and it’s beginning to let issues down. However to place it in perspective, it’s important to save … In San Diego, the common residence purchaser wants to save lots of up $160,000 to purchase a home. With the earnings that they’re making, they should save a minimal of $13,000 per yr to it. It’ll take them virtually 8 to 12 years to save lots of up for that 20% deposit. That doesn’t even maintain monitor with the pricing going up throughout that point. With a median residence value of $905,000, the family earnings ought to be $166,000 to afford that comfortably.
The issue is the median family earnings there’s $70,000 and plenty of the precise jobs which are in San Diego are massive … There’s not as a lot, and I picked San Diego as a result of there’s not as a lot massive enterprise as there’s in Austin, Seattle, San Francisco the place there’s these massive anchor tech firms that sure, they could be going via a downturn proper now and shedding some folks however they’re going to come back again and these are firms that aren’t going away whereas they’ve a way more restricted pool. Navy is a giant deal.
Now I do suppose if we’re going into extra battle that the navy might develop and that there’s going to be, that might increase in San Diego as a result of it’s the most important navy base there’s, nevertheless it nonetheless doesn’t get you to the earnings for affordability. With charges being as excessive as they’re, it’s simply going to tug all the things again as a result of simply folks do not make sufficient cash to purchase. We’re seeing that proper now.
If the charges proceed to go up, which I do imagine they are going to for no less than the primary two quarters, you’re going to see properties dropping value. 43% of all properties in San Diegos have minimize their value this yr. That could be a substantial quantity. Which means persons are both overpricing or even when they’re pricing proper, they’re simply not promoting for folks can’t afford them.
The key pool of that they’ll’t afford that, these massive firms are slowing down, like Qualcomm is a big enterprise there. That’s one among their anchor employers. Qualcomm has froze their hiring proper now. They haven’t introduced layoffs but so far as I might inform, however that’s normally step one. You freeze your hiring after which there’s layoffs coming.
They haven’t predicted the layoffs however they’re anticipating the corporate internally is anticipating that their shipments are going to say no within the double digit share for subsequent yr. They’re predicting that they will do much less enterprise as an organization which goes to start out shedding the folks which are going to soak up plenty of these costlier properties. And so all these issues that whenever you get in a combination, I simply see these things coming down. It’s manner too costly, we’re lacking like $70,000 on the median residence value to get folks to actually be capable to afford. Then there’s different issues which are simply indicating that it’s manner higher to lease versus to purchase. The associated fee to lease ratio is 30.38. In a wholesome market, it’s such as you need to be beneath 21.
It’s so far out of whack proper now that I believe that San Diego might fall a further 10% from the place it’s at proper now. That doesn’t imply that I wouldn’t purchase in San Diego, it’s really on my cities to slate to purchase in. I simply suppose that there’s going to be extra alternatives. I don’t need to have the identical remorse I had in 2009 as a result of I do suppose high quality of residing and folks need to dwell there usually and that’s all the time going to drive development.
They’re additionally on a long-term foundation predicting that San Diego’s financial system goes to develop, I believe they mentioned 31% within the subsequent 10 years or 20 years. And they also’re predicting development. However within the quick time period for 2023, I believe it’s going to retract again and I believe all these costly West Coast markets are going to proceed to retract again. The factor it’s important to watch out about with the traders is whenever you’re enjoying in costly markets, the retraction can actually damage. And in order that’s why I put this because the worst market that I’d put money into.

Dave:
Everybody loves leverage whenever you’re going up, after which when it goes down it hurts rather a lot.

James:
I imply it undoubtedly hurts. Like what we had been speaking about earlier than I received on the present, I lastly bought a home that it took 150 days to promote and fortunately I’m breaking even. I don’t even understand how I’m breaking even. However we simply bought the home for 450 grand, lower than a home that we bought proper across the nook once we purchased that deal at first of the yr. And so it’s important to be careful for these slides and the slides are okay, you simply have to arrange for them accurately.
However I do suppose San Diego’s going to have some points. It’s simply too costly for what folks make there. I do suppose persons are all the time going to need to dwell there. Properly, along with apart from that expense, you may have that California expense, the additional 13% earnings tax. There’s too many bills occurring which are consuming up liquidity and that’s why I do suppose that it’s susceptible for a fairly large drop from right here. I believe one other 10% is coming again.

Dave:
San Diego could be in your finest markets for 2024 checklist?

James:
Sure. I really suppose all these markets like Seattle. It’s Seattle, proper? It’s a really comparable … I like Seattle higher than San Diego as a result of there’s extra jobs there. I like Austin higher than San Diego as a result of there’s extra jobs and infrastructure there. However I do suppose all these cities which are having these huge retractions are nice shopping for alternatives, particularly after this second quarter. However it’s important to purchase fastidiously. You may’t purchase historically. Should you’re shopping for historically, you’re going to get … I believe you’re going to get burnt.
However because the markets maintain free fall … I imply these are the markets which are going to have probably the most alternative. Those which are falling backwards are those that everybody simply jumps out of. That’s the place I actually need to bounce in. I most likely will purchase one thing in San Diego. I need to purchase some quick time period rental stuff proper down by the seashore and PB. I do know the apartment market will get hammered and people are issues that I’m searching for, is that if I should buy it considerably beneath what it was value, if I’m shopping for them 30%, 40% beneath that earlier median residence value, there’s runway for development and fairness good points in over a five-year interval.
However like what Kathy mentioned, it comes down to what’s your technique? My technique isn’t excessive money movement. I don’t like coping with these small homes that may get you 10% to fifteen% returns as a result of I don’t like these upkeep bills. They will jeopardize my money movement place. I like excessive development markets as a result of that’s the place you make these massive fairness good points. These fairness good points have utterly modified me as an investor and the way I’ve been capable of passively make investments simply primarily based on these good points.

Dave:
All proper. Properly mentioned. Really once I was attempting to suppose via this for finest markets, I used to be considering of doing a contrarian opinion and saying one thing like Austin, as a result of I believe it’ll go down 20% or 30%, nevertheless it has top-of-the-line long-term development potentials of any metropolis within the nation. And so possibly it’s a nice time to purchase in Austin if to your level, James, you’re shopping for below market worth and discovering good worth.
All proper. Jamil, what about you? How’d you strategy this?

Jamil:
Properly, I cherished all the things that James and Kathy mentioned. I agree that it’s important to take a look at it from the attitude of your funding technique. Everyone knows that I’m a dealer. I take a look at the true property market when it comes to how can I profit, how can I get entangled and the place are my consumers? The place are my shoppers? The place are they seeking to make investments? The place are they working away from?
And so for the worst market of 2023, I’ve chosen Ventura County. Realtor.com predicts that it’s going to drop in gross sales value by about 30%, 29.3%, 29.1% particularly is what their prediction is. That’s a major sum of money. Once you take a look at repair and flip, whenever you take a look at wholesale, whenever you take a look at alternatives for us to commerce in property, in the event you’ve received declining market to that diploma with the entire issues that James was speaking about, you’ve received the common Southern California points just like the state tax, the migration in Ventura County just isn’t, it’s flat, if something.
And so how I take a look at a market like that, as I say, are my shoppers or are my consumers for repair and flip or are my wholesale consumers searching for alternatives in Ventura County proper now? They’re not. For me, the place we aren’t going to be investing advertising and marketing, the place we aren’t going to be investing sources for boots on the bottom to attempt to discover some alternatives or to choose up alternatives for commerce will probably be a few of these larger worth markets in southern California. However I do additionally agree that trying ahead to 2024, as you had talked about and as James had talked about, there’s going to be an incredible worth, however it’s important to wait.
It’s a foul marketplace for 2023, however coming off the tail finish of that, if you can begin shopping for in This autumn of 2023 and get them considerably beneath market, as a result of at that time there’s going to be desperation, exhaustion. Sellers are going to be simply, they’ll have had it. I really feel in the event you can time your purchases proper, you may make the worst market at 2023 your finest market at 2024. And so I’ll be re-entering Ventura and a few of these markets in Southern California in direction of the tail finish of ’23.
However for now the worst market, Ventura County.

Dave:
It is smart. Kathy, what’s your learn on this California hate over right here with getting James and Jamil? However actually we’re seeing plenty of inhabitants leaving California and it’s very costly. I really feel like folks have been saying California’s going to nostril dive for many years and it by no means occurs. As a resident and a local, what do you suppose the longer term holds for California within the subsequent few years?

Kathy:
I’m a local of many generations. My grandmother was one of many first folks to swim … She swam throughout the Golden Gate Bridge. She was an Olympic athlete and would swim round Alcatraz. I actually have my roots in California, and it is a dialog that has been had most likely for a century. It’s simply all the time the case when you may have extremely fascinating world class areas, it can by no means be low cost and there’ll by no means be a scarcity of people that can afford it. It’s simply that they’re unstable. These are unstable markets.
However San Diego, I imply it actually is likely one of the finest locations on this planet to dwell or to have a second residence. There are extra folks that will purchase there or personal there than work there. Clearly if you’re attempting to do a purchase and maintain, once more, it simply depends upon technique. But it surely’s virtually like if you are able to do a long run flip, that means possibly you purchase one thing, you lease it out for a yr or two the place it’s form of protecting its price. It most likely gained’t, it can most likely nonetheless be unfavourable however then do the flip later so that you form of received in low …

Jamil:
Should you can by no means get the tenant out.

Kathy:
Proper, there’s that.

Dave:
Legitimate level.

Kathy:
But it surely all the time has bounced again, and you’ll make some huge cash in the event you maintain. That’s why so many Californians are loaded and are bringing their cash to different locations as a result of they made their cash in housing in lots of instances.
Should you dwell in California, so what I consider California, I’d love to depart California. However I like the climate. I like all the things about it besides the politics and the costs. However it will be arduous for me to go anyplace else and I believe lots of people really feel that manner who dwell there.

Dave:
All proper, nicely yeah. I wouldn’t wager towards the California market long run. It all the time bounces again. Oh, and one factor I do need to say whenever you had been speaking about that, that might be an excellent alternative for a live-in flip for individuals who need to try this. You get to dwell in California after which flip it down the street. Should you dwell in it for 2 out of 5 years, you pay no tax. Good alternative.
For mine, I wished to choose a metropolis that we don’t discuss rather a lot additionally on the West Coast, however was one of many hottest markets during the last couple of years. I picked Reno, Nevada. Do you guys know something about Reno?

Kathy:
Simply bought off our two subdivisions there simply in time, so sure.

Dave:
Oh good. Properly it went loopy during the last couple of years, so hopefully you probably did nicely there.

Kathy:
Bought proper earlier than charges went up, in order that was good.

Dave:
Ah, good.

Jamil:
Congrats.

Kathy:
Thanks.

Dave:
As a result of to me, Reno is one among these cities that simply popped on account of distant work. It’s an exquisite place. There’s no earnings tax. It’s proper close to Lake Tahoe, it’s very nice. However whenever you take a look at the financial fundamentals, it doesn’t actually assist all the expansion that we’ve seen. Much like what James was saying about San Diego, you simply see a very not a excessive sufficient earnings degree to assist the costs. You don’t actually see, not like Seattle or Austin that has distinctive job development and tech firms shifting there, don’t see that to the identical diploma in Reno.
That is what to me going to be an attention-grabbing experiment as a result of I believe it grew rather a lot just like Boise. I believe it’s form of an analogous factor the place individuals who wished to dwell someplace with an incredible high quality of life determined to maneuver there, however must see if the financial system can assist it as soon as persons are both known as again to the workplace or salaries don’t rise on the identical charges that they’ve been or there’s layoffs we’re beginning to see.
Sadly for Reno, I don’t suppose it’s going to be doing fairly nicely over the following couple of years. It’s already seen the times on market go up by about 250% over the course of this yr. We’re at days on market over 60, which is in any market fairly excessive. And value drops are over 45%. That’s my choose.

Kathy:
Properly, I might inform you why we invested there, why we purchased land there and constructed plenty of homes there as a result of Tesla moved its battery manufacturing unit there and there was simply … Google was shifting up there as a result of it’s solely about 4 hours from San Francisco, nevertheless it’s in Nevada, no state earnings tax. It simply appeared like that is going to continue to grow.
However like San Diego, it simply lags. It simply lags. It’s so unusual why you’ll suppose for these causes firms would transfer to Nevada simply to keep away from taxes. But it surely’s nonetheless a four-hour drive. If there was a velocity bullet prepare or one thing, possibly it will be a unique story, I don’t know. But it surely’s all the time lagging.

Dave:
The earnings simply hasn’t grown there in the way in which that it will want to simply assist a few of these costs.

James:
Don’t they run out of water? Isn’t there an enormous water subject in Reno too, prefer it’s dry virtually? I simply keep in mind I went to Lake Tahoe, they had been speaking about it. The water’s low they usually’re attempting to determine the best way to get extra water in.

Kathy:
I believe usually, that was California.

Dave:
And Nevada.

James:
Properly, it’s additionally loopy too whenever you go to Lake Tahoe, that property values as a result of a part of it’s in Nevada they usually name that millionaires row on that facet as a result of that’s the place all of the mega mansions go. I get what Kathy was doing. They need to get out of that earnings tax and it’s like, so you may have properties which are value tens of millions and tens of millions of {dollars} on one facet after which simply kitty nook, they’re value 45% much less as a result of there’s no earnings tax.

Jamil:
No, that’s attention-grabbing.

Dave:
All proper, nicely we’ve talked concerning the draw back. Once more, I believe that a few of these markets might be nice sooner or later. We’re simply speaking about 2023, not without end. Let’s transfer on to markets that we do suppose are going to outperform or do nicely within the subsequent yr. Kathy, on the opposite facet, you didn’t like Detroit. What do you want for subsequent yr?

Kathy:
Properly, as you already know, like I mentioned, we all the time take a look at job development, inhabitants development and infrastructure development mixed with affordability. I need to be in markets that money movement as we speak and so you possibly can maintain these properties. They don’t need to money movement rather a lot. This can be a long-term play however cowl their prices so that you simply’re actually capable of maintain these as they recognize.
Tampa actually suits that for me. Tampa has utterly redefined itself within the final decade. In truth simply in 2021, there have been 9 firms that relocated their headquarters. There’s an article that claims tech firm relocations to Tampa Bay soar in 2021. 94 new firms had been added to St. Pete’s pipeline. A number of job development and that’s actually essential to us.
Now with that comes inhabitants development. In Tampa, it was 1.3% up final yr. That is the essential factor trying ahead, it’s projected to develop 3.3% yearly. The expansion has simply began. Greater than 128,000 new residents are forecast to maneuver to the metro space. How on earth by subsequent yr, by 2024, there’s not sufficient housing for all these folks.
We’re nonetheless shopping for homes within the one $150,000-$200,000 vary nearly 45 minutes outdoors of Tampa. I don’t prefer to be too far-off from a significant metro, but when it’s nonetheless driving distance and there’s nonetheless workplaces and jobs close by. Simply on the outskirts and out of flood zones and out of the hurricane zones, form of extra inland of Tampa, we’re actually discovering wonderful offers. I believe in the event you might nonetheless get a home for $200,000, $300,000 in an space that’s rising like that, to me that’s a steal.
Median lease is $2,300 monthly for a three-bedroom residence. There’s plenty of markets the place it could be a two-bedroom condominium or one thing. However in line with Zumper, $2,300 for a three-bedroom residence, that’s fairly good. Rents have elevated by 16% final yr, and 48% of households in Tampa lease fairly than personal. I believe we will all agree that Florida usually is enterprise pleasant and landlord pleasant. It meets all of the issues that I would like. I’m not frightened in any respect about shopping for in Tampa as we speak.
Oh my gosh, for the properties that I personal within the Tampa space, I get calls propped and texts most likely each different day of individuals attempting to purchase these properties. There’s nonetheless plenty of exercise.

Jamil:
That’s my fault.

Dave:
It’s Jamil, he’s calling you.

Kathy:
I do know. I maintain providing twice what it’s value and nobody’s taking it.

Dave:
All proper. Properly, I like Tampa too. That’s an excellent choose. I imply I believe there’s plenty of … Florida, it simply appears to be this cut up metropolis, cut up state. Some markets appear to be overheated proper now, however markets like Tampa simply appear to nonetheless have actually sturdy fundamentals. We’ll need to regulate that one.

Kathy:
I’ll simply say another factor after which add to it that the iBuyers are form of backing off, so you may have slightly bit extra alternative to get in as we speak and we’re lastly beginning to see the foreclosures gross sales form of hit. There’s extra alternative there than there was, however all the identical dynamics of development that we like.

Dave:
Good. All proper. James, what about you? What do you want for subsequent yr?

James:
What I like for subsequent yr is … It’s humorous once I was researching all this. There have been plenty of the expected markets which are going to carry out very well in 2023. It’s all primarily based off math equations. After I was all these lists, I’m like, okay, I get it. It’s a really low value level. The median earnings is up. There’s low stock, in order that they’re predicting development. That absolutely is smart.
However for me as an investor, I additionally like to purchase stuff the place folks need to dwell. And so I picked Raleigh, North Carolina, which I do know did actually good this final yr. The reason is is it’s ranked on quite a few lists as the most effective locations to dwell in the US. It was ranked quantity six just lately and it has a ton of development behind it. It had a 3.4% GDP development in 2022 and the economics behind, it’s Riley and Durham County however there’s development occurring there. The inhabitants is rising as a result of folks need to dwell in high quality locations however nonetheless maintain their capital.
Lots of our pals, I do know a considerable quantity of individuals within the final 12 months that make good cash, they’ve good careers they usually reload out of California. The explanation they did is as a result of they had been sick of making a gift of that 13%. They had been sick of paying an excessive amount of cash for housing they usually’re going to areas like this.
Should you take a look at how reasonably priced that is for the standard of residing, so that is the sixth rank metropolis of locations to dwell you could have an incredible life to dwell in. The median residence value is $410,000, which did develop by 16% final yr and that’s my concern. It did have plenty of speedy development. However the family earnings is $98,000. So folks can afford to … They will transfer there, have an incredible life and nonetheless dwell comfortably.
All people that I’ve identified, and I additionally go off of what are folks saying. Individuals have been reloading to Raleigh, North Carolina, Charlotte, they usually adore it. They love all the things about it. That could be a buzz, and as we go right into a recession and issues are costing extra, persons are going to search for space. They only need to get pleasure from life and dwell someplace that they’ll increase their youngsters, and that is a type of scorching locations.
The opposite factor I favored is there’s going to be a listing drawback, I imagine. Since 2010 till now, they constructed 50% much less homes than they did from 2000 to 2010. In case you have development occurring there as a result of the inhabitants is rising, similar to Kathy mentioned prefer it’s rising at a speedy charge, it has traditionally grown round 1.5%. It’s been rising close to 3% the final three years. And so it has the excitement. That is the place persons are shifting, there’s a scarcity of stock and folks can afford issues.
One other attention-grabbing stat I noticed and I used to be like, wow, that is fairly, it form of blew my thoughts. 23% of individuals don’t have mortgages there. That’s how reasonably priced it’s. That absolutely caught me off guard. And so whenever you’re a top quality place to dwell, they’ve good earnings. The median residence value remains to be very, very reasonably priced. The colleges are nice. Charlotte, the massive metropolis subsequent to it’s rising quickly. These are all good issues for long-term good points on a property, along with folks need to dwell there.
The one factor that I did see that could be a little regarding is the price of lease. That’s one thing that I’m actually now in all my metrics once I’m issues. Is it manner cheaper to dwell in a rental? It went from being round 16% to 17% to 19.65%. The hole is getting shut on whether or not you could possibly lease or purchase, however that’s nonetheless beneath that 21-point threshold that they discuss.
There’s nonetheless slightly bit extra room, it nonetheless makes extra sense to personal than it does to lease. And so these are issues that I believe are actually wholesome for development for 2023. Individuals need to dwell there, they’ll afford it and it’s nonetheless cheaper or a greater state of affairs to purchase. I believe that it has plenty of room to develop.
One other factor I noticed really, the markets I’ve been watching are these hockey stick markets. Raleigh has jumped dramatically, nevertheless it solely got here down 5% as an alternative of that 10% to twenty% that we’ve seen in a few of these tech markets. It didn’t fairly develop on the identical charge as San Diego, Seattle, Austin, it grew about half the speed. And so it’s form of a extra leveled out market, so there’s much less of a hockey stick occurring there.
However I’m going to actually dig into this market. I like all of the stuff I learn on it. I do know I like all the things I hear about folks, and I actually do love markets the place folks need to dwell. Raleigh is one among them.

Dave:
Superior. Yeah, I imply it’s anchored by very, very sturdy financial system. Three of the most important analysis universities within the nation, Duke, UNC, NC State are all in that space. When you may have that form of schooling degree, you see plenty of firms shifting there to benefit from that workforce. So very, very sturdy financial system there.
North Carolina has some bizarre guidelines about shopping for homes although the place it’s important to like, what’s it known as? It’s a must to pay some price to take the home off the market. It’s placing earnest cash down, nevertheless it goes arduous instantly. Have you ever ever heard of this?

Jamil:
Choice price?

Dave:
Yeah, it’s like an choice price. Final yr, they had been like 20 grand earlier than you even have an inspection. It’s loopy.

James:
Yeah, I used to be simply speaking to somebody about that they usually mentioned, yeah, it’s like two earnest. There’s an earnest cash after which there’s like a due diligence price.

Jamil:
Yeah, it’s to curb wholesaling.

Dave:
Yeah. It’s loopy although as a result of in a standard yr, I talked to an agent down there as a result of I used to be excited by shopping for in Durham. They had been saying like in regular yr, it’s like 500 bucks. So it’s like, all proper. However final yr with how aggressive it received, it was like 20 or 25 grand. That was earlier than you even received an inspector in there, earlier than you even essentially stroll the property.
So if folks had been … I imply, that’s loopy. That’s why I simply didn’t do it. However hopefully on this subsequent yr, it gained’t be as aggressive when you are able to do one thing like that.

James:
The shopping for situations had been so bizarre although. We used to jot down gives on properties. We write a five-day shut, it’d be listed for 400 grand. We might write it up for let’s say $450,000, and we’d write earnest cash at $448,000 and launch it to vendor day after Mutual. We might write the weirdest phrases we might just do to attempt to get that deal. They’re like, “Wait, what do you imply?” We’re like, “No, no, we’re going to offer you all the cash till we shut for two,000 bucks.”
We had been attempting all the things simply to lock a deal down. It was like, however I believe that that may go away from what I hear from folks which are shopping for there. It’s again right down to 500 bucks. Individuals aren’t throwing loopy numbers at it anymore.

Dave:
For positive it’s wild. However agree that it’s a really sturdy market. All proper. Jamil, what do you bought? What’s your favourite marketplace for subsequent yr?

Jamil:
Properly, once more, this from the attitude of a dealer, so I’m searching for alternatives which are fast the place my consumers can get in and do tasks the place they gained’t get slammed and have a home sitting available on the market for months and months and months the place mortgage charges aren’t going to be a substantial state of affairs. Now, what we’ve seen, we’re seeing throughout the US in virtually each market that costs are declining. Nevertheless, there’s a unicorn market proper now that plenty of of us aren’t speaking about the place that’s not occurring, and it’s Hartford, Connecticut.
Hartford, Connecticut. Attention-grabbing, realtor.com is predicting that they are going to have a value appreciation in 2023 of 8.5%. Purchaser demand is so sturdy there proper now that they’re nonetheless in a number of gives, conditions on properties, and homes are promoting 20% above checklist proper now with mortgage charges the place they’re proper now. That’s how sturdy the demand is. It’s loopy. It’s like all the things that we had been seeing main as much as this complete market shift, all of the craziness in many of the markets throughout the US, we’re seeing these a number of supply conditions, it’s nonetheless occurring in Hartford, Connecticut, which is loopy to me.
Past that, the median value over there’s very low at 372, so it’s nonetheless comparatively reasonably priced. You’ve received sturdy migration. You’ve received New Yorkers shifting there. You bought folks from Florida shifting there. You bought folks from New England shifting there. It’s received plenty of demand. And so persons are shifting there. There’s sturdy, sturdy, sturdy purchaser demand. The mortgage charges didn’t have an effect on it as a result of we nonetheless have a number of supply conditions.
Repair-and-flip goes to be very sturdy over there. Wholesaling will probably be very sturdy over there. We’re going to be doubling down our efforts in addition to attempting to determine extra franchises within the space as a result of I see heavy alternative for wholesaling and fixing and flipping on this little unicorn submarket.

Dave:
This must be the primary time in BiggerPockets historical past anybody’s ever talked about anyplace in Connecticut as a spot to … I grew up not so removed from right here and simply by no means even discuss Connecticut. However Hartford has been one, it’s a low value market. Simply anecdotally, most of my pals who grew up in New York with me now moved to Connecticut, principally to Stanford, Bridgeport, locations near town.
But it surely’s an actual factor. Hartford is form of completely located between Boston and New York. And so possibly you’re getting folks from each of these larger value markets who simply need someplace within the northeast that’s slightly bit inexpensive.

Jamil:
They’re. There’s jobs and business there too as a result of it’s the insurance coverage capital of, I imagine the world, the insurance coverage capital of the world. Aetna’s received their headquarters there. Cigna’s received their headquarters there. We all know that there’s sturdy alternative in healthcare. There all the time will probably be. That’s one of many industries that we perceive will all the time have plenty of demand and plenty of alternative.
I believe it’s one among these markets that we’ll take a look at in 5 years and say, who knew? Jamil did.

Dave:
Yeah. Connecticut has underrated pizza. I don’t know if anybody is aware of that, however has higher pizza than folks give a credit score for. It’s essential.

Kathy:
It’s the place my husband was born.

Jamil:
Wow.

Kathy:
Yeah.

Dave:
What, in Hartford?

Kathy:
Mm-hmm.

Dave:
Wow. All proper. Possibly Jamil and Wealthy must go on a tour. All proper. Properly for mine, I wished to do one thing just like Jamil, slightly contrarian, some locations that individuals haven’t heard of or aren’t speaking about a lot. For some motive, possibly not in 2023, however I’m lengthy on the Midwest. I believe just like how the Southeast during the last couple years has seen, this massive pop, the climate is nice, but in addition it’s simply extra reasonably priced than the West Coast and the Northeast.
I believe the Midwest additionally has that going for it. Doesn’t have the climate, I’ll provide you with that. However the Midwest is by far probably the most reasonably priced a part of the nation now as a result of the Southeast has gotten a lot costlier. The town that I like within the Midwest probably the most is Madison, Wisconsin. By no means been there, however simply on paper, it has actually good inhabitants development. It estimated grew 1.5% simply this yr. Its unemployment charge is at about 2%, which is far decrease than the nationwide common. It’s a extremely, extremely educated workforce.
To James’s level, I’m simply going primarily based on affordability. Individuals can afford to dwell there and it has a excessive scores for high quality of life, and it’s nonetheless rising. It’s nonetheless constantly rising 8% to 10% year-over-year, and it’s been doing that for the final a number of years and it’s proven no indicators of slowing down during the last couple of months. I believe this market remains to be going to continue to grow over the following yr. I don’t suppose it’s a fluke. I believe it’s an reasonably priced market, prime quality of life and reasonably priced, which as James mentioned, form of a number of the key indicators for long-term efficiency for purchase and maintain markets.
I attempted to do one thing slightly bit bizarre and slightly bit completely different, however I believe Madison’s going to be a winner.

James:
Brutal winters.

Dave:
Sure, undoubtedly. Brutal winters.

Kathy:
I do know what he mentioned, high quality of life. I used to be like, it depends upon how a lot you’re keen on chilly.

Dave:
It will get rated excessive for high quality of life, folks prefer it there. However I suppose these are all like James mentioned, it’s a math equation. They’re like, what was your rating on air high quality and what was … It’s these issues. You most likely must look into slightly little bit of the methodology.

Jamil:
Once you dwell in perpetual summer time like me right here in Phoenix, I don’t thoughts seasons.

James:
I’ve had too many seasons. I don’t need them anymore.

Dave:
I went to high school in upstate New York and it’s completely brutal. I didn’t prefer it. It’s not for me.

Kathy:
Why do you suppose Wealthy moved from East Coast to West Coast?

Dave:
Yeah, precisely. However I simply suppose typically, I believe the Midwest has gotten hit arduous and there’s different cities within the Midwest additionally I believe are Chicago I imagine will rebound over the following couple of years. I imply, I believe it’s doing high-quality proper now, however we’ll begin rising once more simply because it’s a lot extra reasonably priced than different massive cities. There’s nonetheless actually good jobs in these markets.

James:
Cool metropolis too. I like Chicago.

Dave:
Final time I used to be there, Jane’s household lives there, and I used to be there over the summer time. Man, that metropolis is principally holding down inflation for the complete nation. We had been going out and we went and purchased beers they usually’re like $3 for a beer. We’d go get a sandwich, it’d be like $5.50. And I used to be like, this place is holding it down. There’s steady costs in Chicago since 1990. They’re simply doing us all a favor.

Kathy:
Chicago’s plenty of enjoyable.

James:
I ate lunch yesterday once I was prepping, performing some work and consuming, I received a sandwich and a soda and it was $33. I used to be like, it’s ridiculous. What’s going on? Yeah. I imply, now Chicago would possibly bounce up my checklist if it’s actually that low cost.

Dave:
Truthfully, it’s. It’s so low cost there, I imply, comparatively talking. Was your sandwich good no less than?

James:
It was good. It was prime rib dip. It was fairly good.

Jamil:
Oh, he failed to say it was a chief rib sandwich. It is smart.

James:
Yeah. It’s a wagyu beef.

Jamil:
Yeah, when you may have wagyu between bread, it’ll be 33 bucks.

James:
However that was a $20 meal earlier than the pandemic. That was like a $19.94 with a $3 tip on there.

Dave:
All proper, nicely thanks guys. It’s been plenty of enjoyable. Let’s simply sum this up. Kathy’s picks had been worst performing marketplace for subsequent yr will probably be Detroit, however finest will probably be Tampa. James had San Diego because the worst performing market, and his finest was …

James:
Raleigh.

Dave:
Raleigh. There we go. Jamil choosing Hartford for his finest one, bringing a brand new state onto the map. He had Ventura County, California as his worst performing. For me, I believe Reno’s going to take successful, however Madison, Wisconsin is my darkish horse for subsequent yr.
All proper, nicely thanks all everybody. We might love to listen to on the boards, we simply placed on the BiggerPockets boards a query to ask you what all you suppose the most effective and worst performing markets of 2023 are going to be. So if you wish to work together with us or discuss to different listeners about market potential for subsequent yr, ensure that to go to the BiggerPockets boards. Simply go to biggerpockets.com/boards and also you’ll discover it there.
Jamil, James, Kathy, thanks a lot for being right here. We recognize you. We recognize you all for listening, and we’ll see you subsequent time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett, enhancing by Joel Esparza and Onyx Media. Analysis by Pooja Jindal, and a giant due to the complete BiggerPockets crew.
The content material on the present, On The Market, are opinions solely. All listeners ought to independently confirm information factors, opinions, and funding methods.