Economics 101 teaches us that price changes in assets, goods and services are a function of supply and demand. The economic demand (versus demographics demand) for real estate is a function of job growth and income.
HomeVestors® (the real estate franchise with the signs that say “We Buy Ugly Houses®”) quarterly compiles several reports on investing and renting. They have just released their Q3 2012 small-town report on the top 10 small towns to invest in rental property predicated on growing employment (a minimum 2.5 percent per year in the list) and less-than-average unemployment.
Two trends become immediately obvious in this list. First, look at the surprising number of these top-10 towns that are college and university locations. Second, small-town America is becoming the economic meristematic tissue for job growth. This makes sense given that most job growth takes place in small firms—and small towns are breeding grounds for small business. That said, the Small Business Administration reports the following (and this is an abbreviated list—so click through and read the rest—you will probably be surprised):
- Make up 99.7 percent of all employer firms
- Employ half of all private sector employees
- Pay 44 percent of total U.S. private payroll
- Generated 65 percent of net new jobs over the past 17 years
- Create more than half of the nonfarm private GDP
Source: Small Business Administration
The bottom line is that big is not necessarily better—and investment opportunities expand beyond expectations in many localities.
I reiterate it is time to overweight in real estate and that for many locations we will look back in 12 to 24 months wishing we had bought more.