Planning to buy an investment property in 2021? One of the main things you need to consider before making your purchase is the state of the local real estate market. At any one time, the market is either a buyer’s market or a seller’s market. Understanding the state of the market will help you make the right decisions regarding investing in real estate.
What is a buyer’s market?
A buyer’s market happens when the number of homes for sale in the market exceeds the number of buyers. In other words, real estate supply exceeds demand. In such a situation, the housing market is favorable for buyers. On the other hand, a seller’s market happens when the number of homes available for sale is less than the number of property buyers, whether homebuyers or real estate investors. Since house buyers have fewer options to choose from, it results in bidding wars, thus driving up the price of homes.
In case you’re wondering what is the market where you plan to invest, here are some of the signs of a buyer’s market:
- Available inventory: Housing inventory can vary from state to state, as well as from zip code to zip code. Be sure to focus on what is available at the local level. If your market has over 7 months worth of inventory, then you are in a buyer’s market. To determine inventory in your locality, take the number of properties for sale and divide by the total number of sales in the last 30 days. For instance, if there are 20 homes for sale in your neighborhood and only 2 sales in the last month, that makes it 10 month of inventory, thus a buyer’s market.
- Real estate comps: Real estate comparables, or comps, refer to recent sales in your neighborhood of houses that are similar to what you are looking for. Comps should be similar in terms of type (single-family home vs. townhouse vs. condo vs. apartment vs. multi-family home, etc.), size, age, number of bedrooms and bathrooms, location, and features. If real estate comps are selling for less than their asking price, then you’re in a buyer’s market.
- Days on market: When demand for real estate is low, homes for sale stay on the market for longer than they normally would. Generally, if homes stay on the market for more than 60 days, it would be considered a buyer’s market.
- Home prices: Are home prices going up or down in your area? If the prices have been decreasing in the past few months, then you are in a buyer’s market.
- Distressed properties: The number of distressed properties for sale in your area is another good indication of the state of the market. An increasing number of foreclosures, short sales, or bank owned properties shows that the local house market is buyer’s.
Is now a good time to buy a house to rent out?
Looking at the current real estate market trends, there has never been a better time to buy a home. According to a May 2021 report by the National Association of Realtors (NAR), existing home sales dropped 2.7% from March to 5.85 million in April. This was the third straight month of decline. Meanwhile, the median home price of existing homes rose to $341,600 in April, representing a 19.1% year-over-year increase. The 30-year fixed mortgage rate remained low at 3.06%.
Low mortgage rates means that homes remain relatively affordable, especially for first-time home buyers in the US real estate market. With the continually rising home prices, buying investment property now means enjoying a good return on investment in the form of real estate appreciation in coming years.
Related: Invest in These 10 Cities for Real Estate Appreciation in 2021
Best cities for buying rental property in 2021
Even though the US real estate market today favors sellers in general, there are still some locations which favor buyers.
In a recent article, Money Crashers listed some of the best cities to purchase a property in a buyer’s market in 2021. Their findings were based on factors like home prices, average time on market, and local unemployment rate, among others. So, if you’re a beginner investor or would like to avoid a bidding war, you should consider these cities for buying a traditional rental property this year.
The numbers used below are derived from May 2021 data provided by the Mashvisor real estate software platform:
Mashvisor Infographic: 10 Best Buyer’s Markets for Traditional Rental Properties in 2021
1. Toledo real estate market
In addition to favoring property buyers rather than sellers, Toledo is also one of the most affordable real estate markets in 2021. This makes the entry of new real estate investors easy. Also, Mashvisor’s nationwide real estate market analysis identified Toledo as one of the absolutely best places to buy rental property in 2021. The Toledo real estate market features one of the highest cash on cash return rates for both traditional and Airbnb rental properties this year. This is the combined effect of the good economy, the strong rental market, and the sizeable tourism industry.
Related: How to Perform a Real Estate Market Analysis in 2021: Use These 3 Tools
- Traditional Cash on Cash Return: 5.83%
- Median Property Price: $108,000
- Price per Square Foot: $86
- Price to Rent Ratio: 10
- Monthly Traditional Rental Income: $876
2. Rockford real estate market
While the Rockford real estate market is one of the less popular destinations for investors, it is definitely a location you should consider. Not only is it a relatively relaxed buyer’s market, but it also offers one of the best rate of return for traditional rentals in 2021. Furthermore, home values are well below the national average, so buying an income property is an option with or without the best investment property loans.
Related: The 6 Best Real Estate Investment Loans in 2021
- Traditional Cash on Cash Return: 4.24%
- Median Property Price: $135,000
- Price per Square Foot: $82
- Price to Rent Ratio: 13
- Monthly Traditional Rental Income: $875
3. Cleveland real estate market
Situated in the southern shore of Lake Erie, Cleveland is one of the largest cities in the State of Ohio. It has a metro population of 2.1 million and boasts a diverse economy incorporating financial services, healthcare, technology, and higher education. With an unemployment rate of only 5.8% and a monthly household income of $58,000, demand for real estate remains high in Cleveland. According to Redfin, 392 homes were sold in the Cleveland, Ohio housing market in May 2021, representing a 24.6% year-over-year increase. With a median home price lower than the national average, Cleveland is an ideal location to buy an affordable investment property. In fact, it has been listed as one of the best place to live by U.S. News.
Related: Top 10 Job Markets: Where to Invest in Real Estate in 2021
- Traditional Cash on Cash Return: 3.21%
- Median Property Price: $205,469
- Price per Square Foot: $131
- Price to Rent Ratio: 17
- Monthly Traditional Rental Income: $1,020
4. Philadelphia real estate market
With a population of more than 1.5 million people, Philadelphia is the 6th most populous US city. Philadelphia rental market analysis reveals than half of the population rents, which makes Philly such a great location for investing in long-term rental properties. Importantly, the Philadelphia real estate market has been a popular destination for migration from prohibitively expensive New York, and the recent remote work policies are further exacerbating this trend.
- Traditional Cash on Cash Return: 3.10%
- Median Property Price: $405,639
- Price per Square Foot: $267
- Price to Rent Ratio: 22
- Monthly Traditional Rental Income: $1,545
5. Virginia Beach real estate market
While many might associate Virginia Beach with short-term rental opportunities, this is also a good market to consider if you’re interested in investing in long-term rental properties. Buying a property is easier than in other top locations because of the current state of the residential real estate market which favors buyers.
- Traditional Cash on Cash Return: 2.57%
- Median Property Price: $441,011
- Price per Square Foot: $230
- Price to Rent Ratio: 23
- Monthly Traditional Rental Income: $1,617
6. Albuquerque real estate market
Albuquerque is the most populous city in the State of New Mexico. About 41% of the population rents rather than owns a home, so rental demand is strong. Combined with the state of the market, this makes Albuquerque one of the best places to invest in traditional rental properties in 2021.
- Traditional Cash on Cash Return: 2.04%
- Median Property Price: $444,112
- Price per Square Foot: $190
- Price to Rent Ratio: 27
- Monthly Traditional Rental Income: $1,390
7. Tulsa real estate market
Tulsa is a thriving economy driven by industries such as manufacturing, finance, high tech, and aerospace. In 2020, it was ranked by Forbes as one of the hottest housing markets in the US. According to the Tulsa Association of Realtors, demand for homes remains relatively high.
- Traditional Cash on Cash Return: 1.95%
- Median Property Price: $479,047
- Price per Square Foot: $164
- Price to Rent Ratio: 30
- Monthly Traditional Rental Income: $1,310
8. Hartford real estate market
Hartford, the capital city of Connecticut, is made up of 16 neighborhoods. It boasts dozens of amenities including gas stations, coffee shops, restaurants, parks, and gyms. The city also hosts over 100 highly rated public schools. Realtor.com reports that the median list price of homes in April increased by 30.9% year-over-year.
- Traditional Cash on Cash Return: 1.95%
- Median Property Price: $479,047
- Price per Square Foot: $164
- Price to Rent Ratio: 30
- Monthly Traditional Rental Income: $1,310
9. Miami real estate market
Miami is well known for its great weather, pristine beaches, eclectic culture, and great food. Recent news from the Miami Realtors Association reveals that home sales are spiking in most counties of the city. A recent report from Redfin reveals that the average homes go pending in about 63 days and sell for around 4% below listing price.
- Traditional Cash on Cash Return: 1.90%
- Median Property Price: $ 654,511
- Price per Square Foot: $ 437
- Price to Rent Ratio: 22
- Monthly Traditional Rental Income: $ 2,525
10. Spokane real estate market
Located at the foothills of the Rocky Mountains, Spokane is one of the largest cities in Washington State. In April 2021, the median list price of home rose by 18.3% compared to the previous year. Home prices are predicted to continue going up in coming months.
- Traditional Cash on Cash Return: 1.60%
- Median Property Price: $396,310
- Price per Square Foot: $204
- Price to Rent Ratio: 28
- Monthly Traditional Rental Income: $1,180
Conclusion
To find the best real estate investments in a buyer’s market in 2021, you need the right real estate investment tools for real estate investors. Use the Mashvisor real estate heatmap to find the best performing neighborhoods for investing in any city of your choice. You can narrow down your investment property search using filters like listing price, rental income, occupancy rate and cash on cash return. Once you’ve found the best areas for investment, find an affordable income property for sale on the Mashvisor Property Marketplace. On this platform, you will find a wide range of off market properties including short sales, foreclosures, tenant-occupied rentals, and bank owned homes.