Secular Demographic Trend and US Turnkey Property
The United States of America did not reach their prosperity in one day. Real estate prices follow secular trends. Just looking at how population varies every 10 years over the last 50 years gives a good idea of what will happen to a city in the next 20 years.
- large population decline will cause an increase in vacant housing stock. This put downward pressure on market prices and cause neighborhoods to decline.
- a rapid population increase will cause a shortage of housing, and this will tend to increase rents and prices.
We are not talking about identifying specific up and coming neighborhoods on their way to gentrification, this is very hard to do without being very familiar with a given neighborhood, but about painting the states with a very wide brush and see what cities are going to grow at a macro level.
The list below has links to the Wikipedia demographics section.
The 1-minute tour of relevant US cities
Cities with secular demographic downtrend:
- Detroit MI
- Cleveland OH
- Birmingham AL
Cities with stable long term demographics:
- Kansas City MO
- Memphis TN
- Indianapolis IN
Cities with secular demographic uptrend:
- Columbus OH
- Tampa FL
- Atlanta GA
- Dallas Fort Worth TX
- Charlotte NC
Cities that became too expensive for turnkey:
- Las Vegas NV
- Orlando FL
- Phoenix AZ
What makes a US city suitable for turnkey investment
You can find here my simple split of US housing into 4 categories. Turnkey providers generally address the bottom 2 categories (rental property $90,000-$160,000 and trashflow $30,000-$90,000). Cities where turnkey investment work needs to verify the following criteria:
- high rental yield directly benefits investors, this means low prices compared to rent
- long-term rent (or price) growth has in fact as much importance, an investment yielding 6% and growing by 5% per year forever is as good as an investment yielding 11%.
- large housing stock and distressed property stock is required by the turnkey provider.
The high rental yield and distressed property stock aspects will push the turnkey providers towards the most distressed and highest yielding markets. This is not always in the investor's best interest, as slightly lower yield markets can have more room for capital appreciation and growth,
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