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Investing in any segment of the economy involves a fair amount of risk. In the realm of real estate investing, the level of risk taken on is deeply tied to the location you choose to invest in, along with timing, demand and the level of appreciation over time.
In a recent article for GOBankingRates, real estate investors Christian Gore and Itay Simchi shared 1o places they would never invest in real estate, and the reasons why they think those markets should be avoided.
Chicago, Illinois
Gore, the founder and managing partner of G1 Capital Partners, a private capital firm specializing in multifamily and industrial properties, told GOBankingRates he avoids investing in the Windy City because of the risk posed by high property tax increases.
“The state is fiscally irresponsible and in a bad position,” Gore said. “There are scenarios in Cook County where property taxes have increased four to six times virtually, making it an illiquid market.”
Detroit, Michigan
One of the most affordable big cities in the nation, Detroit is seen as an unattractive market for investors due to its extremely high vacancy rate as the city continues to recover from the hollowing out of the U.S. automobile industry.
“With a staggering 35 percent vacancy rate, Detroit’s real estate market is still recovering from the automotive industry’s decline,” said Simchi, the founder of Proven House Buyers. “I’ve seen firsthand how difficult it is to find reliable tenants and sell properties in this area.”
Average housing prices in Detroit sit at 73,843, according to Zillow, a less than 2 percent increase from last year.
San Francisco, California
While San Francisco housing prices are famously high, Gore told GOBankingRates he avoids investment in the city because he personally feels it is an unsafe and unpleasant environment to live and work in, which combined with the high cost of entry, makes it a poor investment opportunity.
Baltimore, Maryland
The average home in Baltimore is valued at $187,223, less than 50 percent of the national average but up 5.3 percent from last year, signaling that appreciation could be on the rise. However, the city’s high crime rate — 55.4 violent crimes per 10,000 residents in 2022 according to federal data — and decreasing population, with a 1.2 percent decrease between 2020 and 2022, make it a risky investment, according to Simchi.
New Orleans, Louisiana
New Orleans’ high violent crime rate and sluggish rate of economic growth make it a risky property market, according to Simchi.
The average home in the Big Easy is currently valued at $247,524, a 6.4 percent decrease from the previous year, according to Zillow.
Damage from natural disasters is also worrying, Simchi noted.
“I’ve seen properties damaged by natural disasters and struggled to find quality tenants,” he told GOBankingRates.
New York City, New York
Investing in New York is seen as extremely difficult, with an average home cost of $748,012 that has remained relatively stable over the past year.
High costs come with an extremely high property tax burden, Gore noted.
“The tax burden in NY has climbed significantly,” Gore told GOBankingRates. This makes it “very tough to make sense of investing here.”
St. Louis, Missouri
Simchi finds that St. Louis is another city complicated by its violent crime rate and slower rate of economic growth, and said it has been difficult for him to find good tenants and resell homes in the city.
Values are increasing in St. Louis, however, and the average home value in the city is now worth $177,243, a 5.3 percent jump from last year, according to Zillow.
Memphis, Tennessee
Simchi says Memphis’s high poverty rate (24.6 percent during 2022, according to the census) and low median household income (44,445 in 2022) make the city an unattractive investment proposal.
“I’ve seen properties sit on the market for months, and rental income is often unreliable,” he told GOBankingRates.
Properties in Memphis cost around $151,054 on average, according to Zillow — a 2.7 percent decrease since last year.
Washington, D.C.
Home prices in Washington, D.C., remain high and are growing steadily, with the average property priced at $621,991. Gore, however, told GOBankingRates that he sees the city rules and regulations as a barrier to investment.
“The city has many laws and rules that make investing here difficult and more politically driven rather than fundamentally driven,” he said.
Cleveland, Ohio
Cleveland’s average home value of just $109,453 makes it appear to be an attractive investment opportunity, especially considering prices have increased 8.5 percent year over year, according to Zillow data.
But Simchi says the city’s declining population and high vacancy rates are enough to keep him from purchasing property there.