Top 21 Zip Codes for Real Estate Investing

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Real estate investors may need to broaden their search to additional markets with real estate inventory currently at record lows. When searching, remember that not every property provides good returns, with some cities faring better for investing than others. We’ve determined the top 21 zip codes for real estate investing in 2021.

5 Factors to Determine Hot Cities for Real Estate Investing

Real estate investments should grow in value over time and offer positive cashflow. If your property does not provide cash flow, you will have to inject money into the property continually. If it does not increase in value, you miss out on a great way to build wealth through real estate – capital appreciation. Before making an offer on a property, make sure you run the investment numbers in each of the following five areas.

1. Rental Growth

Rental growth is a powerful way to balloon your cash flow from a rental property. Here is why it works: Your mortgage is a fixed rate, and the rent is going up over time. If you purchased the property with a modest cash flow at the beginning, you have the potential to double your cash flow quickly.

For example, if the monthly rent is $1,000 and the cash flow is $200, a 20% increase in rent would double the property’s cash flow.

2. Appreciation

Some of the zip codes analyzed had over 100% appreciation in a short amount of time. This increase in home value would vastly outpace the cashflow received from a property in that period. Relying solely on appreciation and not cash flow can change a solid real estate investment strategy into speculation. It is essential to focus on a mix of growth and cash flow in an investment property.

Usually, markets with solid historical appreciation have plenty of opportunities for forced appreciation through renovations. Appreciation gives investors the advantage of leverage. Even though you only have a percentage of the equity in your cash, you take 100% of the benefit of the property’s growth through leverage to purchase another property.

3. Cashflow

You may have heard the expression “cash is king.” If you are using real estate to advance your portfolio for retirement or financial independence, then your mantra should be “cashflow is king.”Cashflow provides a margin of safety as an investor. It allows you to save money towards capital expenses, future renovations, and unexpected emergencies.

When analyzing zip codes for this article, if properties did not provide enough cash flow to cover the estimated expenses, they were omitted. It doesn’t matter how much appreciation is predicated if you cannot afford the mortgage, maintenance, and tax payments.

4. Long Term Leverage

Over time, real estate builds wealth for its owner through the principal paydown of the mortgage. One way to think of the principal paydown on a mortgage is as a forced savings plan that your tenants fund. Ensuring a property cash flows is the key to long-term leverage. It’s a one-two punch as they compound off each other.

5. Market Heat

Lastly, this list was created by looking at the previous rental and appreciated growth over the past five years. When evaluating properties for sale in these zip codes, look at average days listed, listing interest, sold price vs. for sale price for a sense of market dynamics.