Best places to buy real estate in the US: Midwest
December 22, 2023 • 8 min read
Table of contents
- Some of the best states to buy real estate in the US: Midwest
- Key metrics to consider when investing in real estate in the U.S.
- How real estate investors evaluate property in the U.S (Midwest)
- Best cities in the Midwest for real estate investment
- Real estate investment opportunities in the U.S. for foreigners (Midwest)
Some of the best states to buy real estate in the US: Midwest
Discover the appealing opportunities in Midwest real estate investment, a sector in the U.S. gaining popularity among global investors. Whether you're from Canada, the U.K., or Latin American countries like Colombia, Mexico, Venezuela, or Brazil, the Midwest offers affordable and promising rental property options.
This guide aims to help foreign investors, including those interested in the 'foreign investment in US real estate' market, to navigate the region's varied economic landscape. Here, we explore why the Midwest stands out as one of the 'best places to buy rental property' and 'the least expensive and safest places to live in the Midwest.' Learn how to tap into the lucrative American real estate market, particularly for those wondering 'how to invest in real estate young' or seeking 'passive income' opportunities.
Key metrics to consider when investing in real estate in the U.S.
Understanding the right metrics is crucial for real estate investors in the Midwest U.S., whether they are high-net-worth individuals, middle-income earners, or new and young investors. Each investor type has different goals and risk levels. Here are key metrics to consider:
Payback Period: Important for all investors, this measures how long it takes for a property to return the initial investment. For example, a $100,000 property generating $10,000 annually has a 10-year payback period.
Return on Investment (ROI): This metric helps assess investment performance. Calculate it by dividing net profit by total investment. For instance, annual cash flow minus operating costs, divided by the loan balance, gives the ROI.
3. Internal Rate of Return (IRR): Complex but crucial for long-term investments, IRR considers the time value of money to evaluate future investments' present value.
Cash Flow: Vital for all investors, this is the net cash remaining after all rent is collected and expenses are paid each month. Positive cash flow means a profitable investment.
Capitalization Rate (Cap Rate): A key profitability indicator, especially for commercial properties, calculated by dividing Net Operating Income (NOI) by the property's market value or cost.
Gross Rent Multiplier (GRM): Used to estimate a building's worth by dividing its price by gross rental income. A lower GRM often means a better investment.
Loan to Value (LTV) Ratio: Important for financed deals, this measures the financed amount against the property’s market value.
8. Economic Indicators: Metrics like job growth, GDP, and population trends help gauge a market's health and growth potential.
Property Prices: Trends in property prices, including median home prices and price-to-income ratios, provide insights into market health and affordability.
Demographics: Factors like age, education, and income levels in an area influence the demand for various property types.
These metrics are essential for investors from Canada, the U.K., Latin America, including Colombia, Mexico, Venezuela, Brazil, and others eyeing the Midwest U.S. real estate market. They offer a comprehensive guide to evaluate risks and rewards in this region's real estate investments.
How real estate investors evaluate property in the U.S (Midwest)
High Net-Worth Real Estate Investors
Focus: Premium Properties in Economic Growth Areas Key Metrics: Luxury Market Trends, Economic Indicators, Appreciation Potential Preferred Locations: Chicago (IL), Minneapolis (MN), Kansas City (MO)
Overview: Wealthy investors can find valuable opportunities in cities like Chicago, Minneapolis, and Kansas City. These areas are known for strong economies and high-end properties. Investors should focus on luxury market trends, economic growth, and potential for property appreciation. Upscale neighborhoods in these cities offer high rental yields and appreciation.
Medium Income Real Estate Investors
Focus: Balanced Markets with Stable Returns Key Metrics: Market Stability, Rental Demand, Economic Resilience Preferred Locations: Indianapolis (IN), Columbus (OH), Omaha (NE)
Overview: Investors with medium incomes should consider cities like Indianapolis, Columbus, and Omaha. These markets balance stability and growth potential, ideal for medium to long-term investments. Look for stable property markets, consistent rental demand, and resilient local economies. These cities offer diversified economies and stable housing markets, securing investment opportunities.
New/Young Real Estate Investors
Focus: Emerging Markets, Affordable Investments Key Metrics: Housing Affordability, Population and Job Growth Preferred Locations: Des Moines (IA), Louisville (KY), Grand Rapids (MI)
Overview: For new or young investors, affordable emerging markets are key. Cities like Des Moines, Louisville, and Grand Rapids are great for beginners. They feature growing populations and job markets, perfect for affordable investments with growth potential. Focus on housing affordability, demographic trends, and job opportunities.
In 2023, the Midwest U.S. real estate market has been characterized by a few key trends:
Overall Home Price Trends The U.S. home prices, including those in the Midwest, experienced a rally, with a 0.6% increase in July 2023 compared to the previous year. This recovery in home prices erased earlier declines from the peak in June 2022 to January 2023, indicating a new high for the National Composite. Notably, areas in the Midwest continued to lead national gains because of their relative affordability.
Regional Performance Cities like Chicago and Cleveland reported the highest year-over-year gains among the surveyed cities in July 2023, with Chicago leading at a 4.4% increase. This trend suggests a strong market performance in these Midwestern cities.
Rental Market While the rental market remains high nationwide, the Midwest is part of a larger trend where renting has become less costly compared to buying a starter home in most large metros. This shift is because of elevated mortgage rates, steep home prices, and declining rent costs. Median rents for small units have declined year-over-year for four months straight, alongside mortgage rates above 7% and a low supply driving up prices despite subdued demand.
Future Outlook The trends in both the for-sale and rental markets suggest that some relief from high unaffordability is on the horizon, but it will take time. For investors, this means there are opportunities, but strategic decision-making is crucial given the evolving market dynamics.
Best cities in the Midwest for real estate investment
The Midwest U.S. is emerging as an increasingly attractive region for real estate investment, particularly for foreign nationals from Canada and Latin America, as well as first-time homebuyers. This attraction is driven by various factors, including affordable housing, robust economic growth, and favorable demographics. Here's a closer look at some of the most promising Midwestern cities for real estate investment in 2023:
Cleveland, Ohio: Cleveland is experiencing a revival, particularly in its central district, which is bringing life and business back to the city's core. The real estate market here is characterized by high occupancy rates (98%) and affordability, making it a low-risk investment option. The median property price in Cleveland is approximately $173,582, with Airbnb and traditional rental incomes providing attractive returns for investors.
Indianapolis, Indiana: Indianapolis stands out as a booming real estate market, especially for buy-and-hold investment strategies. The presence of 130 tech companies has boosted its economy, making it a significant player in the Midwest. The median property price in Indianapolis is around $228,292. The city offers high Airbnb and traditional rental incomes, making it an appealing choice for investors looking for growth opportunities in a tech-driven environment.
Des Moines, Iowa: Des Moines is gaining attention for its booming economy and growing population. This growth is expected to continue, maintaining Des Moines' status as a hot market in the Midwest. The median property price here is $127,571, with Des Moines offering one of the highest Airbnb Cap Rates in the region at 6.39%.
Cincinnati, Ohio: Cincinnati is known for its steady real estate appreciation and positive cash flow income properties. Home to 10 of the Fortune 500 companies, the city's real estate market offers a median property price of $248,057. Cincinnati is an attractive market for both Airbnb and traditional rentals, presenting a balance of growth and stability.
Chicago, Illinois: Chicago, with its population of over 2.7 million and a GDP of $693 billion, represents a major urban market in the Midwest. The city has seen significant growth in home values and offers a diverse range of investment opportunities. Chicago's median rent for a 3-bedroom home is about $2,000, appealing to investors seeking properties in a large, economically vibrant city.
St. Louis, Missouri: St. Louis is another Midwestern city offering great value for first-time homebuyers, indicating its potential as an investment destination. The city has been recognized for its affordability, making it an attractive market for residential property investment.
Midwest cities offer a dynamic real estate market with affordability, strong job markets, and growing populations, ideal for various investment strategies. This region's high quality of life and lower cost of living compared to coastal areas make it attractive, especially for foreign investors from Canada and Latin America.
Investors should thoroughly research local market trends and future development prospects. Utilizing data and analytics tools can provide insights into rental incomes, cash-on-cash returns, and cap rates, essential for evaluating investment profitability.
In summary, the Midwest U.S., with cities like Cleveland, Indianapolis, Des Moines, Cincinnati, Chicago, and St. Louis, presents significant real estate investment opportunities in 2023.
Real estate investment opportunities in the U.S. for foreigners (Midwest)
Foreign investors, particularly from Canada and Latin America, may find attractive opportunities in the Midwest U.S. real estate market. Special mortgage programs like DSCR mortgages, which rely on rental income rather than personal income, are beneficial for those without a U.S. credit history.
Key investment areas are cities with economic stability, growth potential, and affordability. Investors should consider job market trends and population growth. Legal and financial steps include obtaining an ITIN, preparing for a larger down payment, and understanding closing costs. Expert advice is crucial for successful investment in this region.
FAQ: Midwestern U.S. Real Estate Investment for Foreign Investors
Can foreign nationals invest in real estate in the Midwest U.S.? Yes, foreign nationals can invest in U.S. real estate, including the Midwest..
What are the best cities in the Midwest for real estate investment? Cities like Cleveland, Indianapolis, Des Moines, Cincinnati, Chicago, and St. Louis are top choices due to affordability, economic growth, and investment potential.
What key metrics should I consider for Midwest real estate investment? Focus on Return on Investment (ROI), cash flow, Capitalization Rate (Cap Rate), and property price trends.
Is Midwest real estate a good option for investors from Canada and Latin America? Yes, the Midwest's affordable housing and economic stability make it an attractive option for investors from these regions.
Are there legal considerations for foreign investment in Midwest real estate? Foreign investors should consider FIRPTA implications and may need a U.S.-based entity for their investments.
How can I finance a real estate investment in the Midwest as a foreigner? Foreign nationals can obtain mortgages, often requiring a larger down payment and proof of income or assets.
What types of properties are best for investment in the Midwest? Residential properties, particularly in growing urban and suburban areas, are often preferred for their rental income potential and appreciation.
8. How does the economic outlook of the Midwest affect real estate investment? A positive economic outlook with job growth and population increase can signal a healthy real estate market with the potential for appreciation and rental demand.
Can I manage a Midwest property investment remotely? Yes, many foreign investors successfully manage properties remotely, often with the help of local property management companies.
The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
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