Since the rise of the American suburbs in the mid-20th century, there’s been a never-ending debate of whether to stay in the city or move to the suburbs. Homeowners are not the only ones to ask this question; this is a hot topic for property investors as well.
As you already know, the location should be the first factor to consider when buying an investment property. Some locations offer better investment opportunities than others and successful investors are those who know where to buy. This leads us to the main question of this article – Should you invest in an urban or suburban housing market?
According to the PwC’s 2019 Emerging Trends in Real Estate® Report, the suburbs win the debate. Love them or hate them, the suburbs are an integral part of the US housing market. For those looking to invest in rental properties, keep reading to learn why suburban markets are the best places for buying an investment property .
More Renters Are Moving to the Suburbs
Traditionally, cities are where you’d rent an apartment while the suburbs are where you’d buy your own house. No one can deny that urban cities and gateway markets around the US received a boost from the influx of millennial renters over the last 10 years. However, there are plenty of examples today that defeat the old assumption.
Millennial renters have started to move out of gateway markets and into the suburbs and 18-hour cities. In fact, the Emerging Trends Report claims that “the U.S. Census Bureau reports that over 2.6 million people a year have moved from principal cities within metropolitan areas to the suburbs in 2016 and 2017.” Why? Well, the traditional attractions of suburban, non-gateway markets are still the same: larger homes, good schools, and outdoor space. Suburban real estate markets are also more affordable and have lower crime rates than urban cities.
Moreover, the majority of this migrating population is putting off buying a house and opting to rent instead (both single-family and multi-family homes). Researchers are actually seeing that the number of renters is growing faster in the suburbs than in 19 out of 20 US metros. As a result, property investors will see a high demand for rental properties in these suburban real estate markets. This makes buying an investment property there a smart decision.
Suburbs Have More Potential for Growth
Growth appears to be on the side of the suburban real estate market. 18-hour cities that are adjacent to gateway markets are seeing an economic growth as more tenants are looking at them. Moreover, developers in suburban housing markets are providing new construction. Infrastructure development makes new suburban neighborhoods in the US housing market even more attractive to future developers. As a result, it’s safe to say that the supply of rental properties is keeping up with the increasing demand.
Furthermore, aside from single-family homes, many US suburbs now offer a wider range of options for rental properties. Suburban developers are raising the bar by building high-end, garden-style multi-family homes, condo complexes, and luxury properties. In fact, experts expect suburban housing markets to become the next hot thing for multi-family real estate investing.
Related: Understanding Multi Family Real Estate Investing from A to Z
In addition, the best places for buying an investment property are those experiencing economic growth because they provide a strong labor force. Indeed, millennial renters moving to the suburbs are highly educated young professionals looking to start families and businesses. This tenant group is raising the demand for retail space and amenities that focus on work. Not to mention, suburban real estate markets generally have low unemployment rates. This indicates that residents enjoy a steady income and can afford market rents.
The increasing number of renters, attractive cost of living, and workforce quality are all factors contributing to the economic growth of suburban real estate markets. According to the Emerging Trends Report, the successful performance of the suburbs is key to the increasing confidence of property investors in non-gateway markets. More importantly, experts don’t expect these success factors to go away in the future, meaning, the suburbs are a great place for long-term real estate investing.
Thinking of buying an investment property in the suburbs? Click here to start looking for and analyzing the best investment properties in your city and neighborhood of choice in the US housing market.
Additional Benefits of Buying an Investment Property in the Suburbs
1) Affordable Investment Properties
Home prices are a real concern in a number of urban cities in the US housing market. Beginner property investors tend to avoid buying and investing in San Francisco and New York, for example, as these real estate markets lack affordable housing. This makes buying an investment property difficult for a beginner with little capital for real estate investing. However, the rise of suburban areas adjacent to these gateway markets offers a solution to property investors looking for more affordable investment opportunities.
With an investment tool called the Heat Map, you can find the most affordable neighborhoods in any city of the US housing market in minutes! To learn how to use this tool, read “How to Find the Best Investment Property Using a Heat Map.”
2) Low Vacancy Rates
People living in the suburbs tend to stay there for a long time. That, with the increasing demand for rental properties, means your tenants are very likely to rent out for the long-term. Therefore, a rental property in the suburbs is likely to have a lower vacancy rate than a rental property in an urban city where people are always on the go and frequently relocating. Moreover, because renters in the suburbs stay longer, they treat rental properties as their own homes, meaning less wear and tear for you!
3) High Rental Yields
All the above-mentioned lead to the same conclusion: Buying an investment property in a suburban housing market is profitable in terms of rental income. The high rental demand, high occupancy rates, and economic growth allow property investors to raise the amount they charge for rent. A smart real estate investor would use this rental income to cover different expenses and generate positive cash flow.
The Bottom Line
Real estate investing remains the best and safest way to make money. The secret, however, is investing in the right location! Research shows that the suburbs and 18-hour cities are the best places for buying an investment property in the US housing market. They offer investors more affordable options, great returns on investment, and the potential for growth in the long-term.
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