When most of our Self-Directed Real Estate IRA-owning clients read up on real estate investing in the national financial media, the headlines are dominated by the highly-appreciated and largely unaffordable markets. That is, in hot gateway cities and technology and financial centers like San Francisco, New York, Miami and Los Angeles.
Self-Directed IRA Case Study
Robert (50) and Rachel (47) took advantage of the collapse in house prices to buy several investment properties in and near Burlington, North Carolina in 2010-2011. They had sizeable 401(K)s from former employers that they rolled over into Self-Directed IRAs with American IRA.com, which represented the bulk of their real estate investing capital. They “flipped” several houses over the next couple of years as prices recovered, and kept others on as rental properties, delivering steady income. They chose to reinvest income not needed into their flipping activities. The result has been an annualized 24 percent rate of return, given current price levels. But thanks to leverage, their return on invested capital has been nearly twice that amount so far, as they commonly use mortgages to finance about 50 percent of their real estate activity.
They do have some unrelated debt-financed income tax liability each year, but it has been more than worth it as they have been able to handily beat stock market returns since then, even while the stock market has been relatively strong.
These cities grab headlines, of course, with their spectacularly high prices. But there are lots of great bargains available in smaller towns that also have strong fundamentals, solid economics, steady and significant growth in house prices, and better affordability for most of us who do not have millions to throw around to buy an investment property.
Analysts at Realtor.com took a close look at some of America’s best housing markets in smaller towns and cities across the country.
We will deal first with North Carolina’s entry in the field: Burlington.
Many middle-income buyers have been priced out of the Durham area because of the tech boom and Research Triangle Park. But buyers have discovered much better affordability just 30 minutes away in Burlington, where the $245,100 median house price is much less of a burden on the family budget compared to Durham’s median list pricing of $356,800.
Burlington, North Carolina is a viable commuting option for those working in Durham and even in Raleigh, the state capital, which is about an hour away.
Migration to Burlington from Durham and activity from LabCorps, a significant Burlington employer and S&P 500 company, helped push home prices up by 20.7 percent just in the past year.
Burlington came in number 7 in the top hotspot category, according to Realtor.com. Here are the top three:
1. Odessa, Texas.
Odessa is benefitting from the recent increase in oil prices, simultaneously with a boom in oil shale development in West Texas, which has created a job boom. Prices have increased by over 34 percent over the last year as workers flock to the town, bidding the median list price up to $271,400.
This market is probably best for risk-aware investors who can withstand the ups and downs of the oil market. Oil towns have a long history of boom and bust cycles, and Odessa’s in the midst of a boom.
2. Wichita Falls, Texas
Witchita Falls was hit hard by a drought a few years ago, but the rains came back and so did the town. Strong hiring from the nearby Vitro Architectural Glass plant also contributed to the recent boom, which saw house prices rise by 27.2 percent over the past year. But home prices are still very affordable, with a median house price of $140,000.
3. Homosassa Springs, Florida
This sleeper community is a popular destination for snowbirds and retirees from Canada, New England and New York/Pennsylvania seeking relief from the brutal winters up north. After a long period of economic sluggishness, hiring is picking up in the area, thanks in part to Duke Energy’s $1.5 billion natural gas plant on Crystal River.
This and strong economic activity in nearby Hillsboro County and the Tampa area, an hour to the south, helped push the median house price in Homosassa Springs to $225,100 – a 22.1 percent increase in one year.
Other solid housing markets include:
City Median List Price One-Year Change in Median Listing Price
Terre Haute, Indiana $109,600 21.8%
Battle Creek, Michigan $140,000 20.9%
Bowling Green, Kentucky $260,000 20.9%
Boise City, Idaho $335,100 19.6%
Las Vegas, Nevada $330,000 16.8%
Indianapolis, Indiana $250,100 16.4%
Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.