Are you a real estate investor looking for properties with the highest ROI, or return on investment? The key is to choose property types in advantageous markets. When your investment property has consistent demand at a price that promises enough rental income or profit after a flip, you maximize your potential to become a successful property investor. But where is the highest ROI in real estate?
TL;DR: The answer is constantly changing.
As opportunities change according to the fluctuating real estate market, once “bad” areas and property types may become in demand.
For example, right now, South Florida is booming, and so are select cities like Charlotte and Augusta. Trends like these constantly change the goalpost of what is profitable.
Or, you may have a rental in an up-and-coming area that does well for a decade, then the population declines, reducing demand, or the area declines due to crime rates. What was once an excellent investment turns into a liability, which you should sell off quickly to cut your losses.
In short, the highest ROI today may be moderate or not-so-great ROI tomorrow. So how can you ensure that you pick the best housing markets, best cities, and properties with the most advantageous home prices?
Stay on top of the game by being up-to-date.
When you are vigilant about your next steps and monitor your existing properties’ performance, you can protect yourself against common risks like changes in the rental market, increased vacancy rates, and much more.
Know what markets are hot.
The best way to do this is to work with a realtor that knows how to help investors find great markets. With so many areas to choose from, it can be difficult knowing which one is likely to give you the most profits — if you work alone. However, Working with a financial advisor that understands real estate investments will help you identify good investment opportunities, rule out bad ones, and help you see which ones to cull from your portfolio, and where to invest more.
Realtors can help investors of all levels find the highest profit potential with their investments — whether they want to buy and hold or flip. They can research important figures like average rent rates to help you when you speak to your financial advisor. Certain regions may provide greater ROI than others, and certain areas or property types within the same city or town will be more lucrative too.
Typical hot markets/property types:
- Popular tourist areas (think Virginia Beach condos)
- States with a general trend of new residents, like Texas, Florida, and Georgia.
- Areas with ample career opportunities and development like Tampa and Orlando.
- Properties in good locations (i.e., near amenities, especially if within walking distance).
- Affordable and safe properties for renters (single-family and multifamily)
- Rental properties in popular architectural styles like ranch or colonial.
- Properties that are in good condition with well-maintained interiors and exteriors.
- Markets with rising or stable home values.
- Markets that have ample homebuyer demand.
Do your research and continue to evaluate existing properties.
It’s also important to keep a close eye on how your entire portfolio is performing. Is an investment property due a rent increase because of an increased cost of living? Is a one once-booming area starting to decline? Are you able to get enough cash flow from your investments like you were in years past or do you need to make some adjustments?
General Tips
Buy low and sell high.
- Invest in distressed properties. Finding short sales, foreclosures, and off-market homes in need of rehab can score you some amazing deals. The less you spend on your investment, the easier it is to make a profit.
Pay attention to important metrics like the property’s cap rate.
- Before you even buy a property, analyzing how much money you can make from it through popular formulas like the 1% rule can help you greatly. This will make it easier to negotiate the best purchase price and determine whether a property is better suited for short-term or long-term gain.
Don’t limit yourself to one market or property type.
- The real estate market is always on the move. Check out what areas have property values within your affordability range and what markets are stable or growing. You may first fix and flip houses in one area but then later find that owning single-family rentals or multifamily units is more profitable in that market.
Diversify to minimize risk.
- We have a whole other article about diversifying your investment portfolio in many ways as a protection against the inevitable ups and downs in different markets and property types. For example, you can not only have a property management company manage your rentals, but you can also invest in commercial properties, vacation rentals, overseas real estate, or raw land in areas slated for potential development.
Where is the highest ROI in real estate?
Investing in real estate can offer some excellent rewards, such as a good return on your investment. Whether you’re looking to invest in distressed properties or rental properties, commercial real estate or land banking, vacation rentals, or overseas markets – there are plenty of opportunities for those willing to take on the challenge. You just need to do your homework to find the one that works best for you!
Alicia Persson is the real estate content writer for Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined MH, she was a freelance writer for 7 years, providing real estate and home living content for boutique digital marketing agencies.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When she is not writing, she plays keytar and does female lead vocals in a local 90’s band or spends time with her amazing family.