Highly influential real estate investor Grant Cardone has pinpointed two American property markets he would avoid like the plague: Austin and Seattle. Cardone vehemently expressed his views during an interview with Moneywise in which he sought an AI chatbot’s opinion on the top markets for rental real estate investment in the United States.
The AI response initially seemed to resonate with Cardone, mentioning critical factors such as population growth, job opportunities, rental demand, affordability, and potential rental income as paramount considerations for real estate investments. However, his contentment took a severe hit when the AI labeled Austin, Texas, as the prime market for real estate investment, prompting him to passionately dissent.
Cardone vociferously asserted, “Austin, Texas is unequivocally one of the least favorable markets to be in at the moment,” asserting that it’s probably the most excessively developed market in the United States. The top 10 cities the AI recommended for real estate investments encompassed Austin, Dallas, Nashville, Atlanta, Raleigh, Phoenix, Tampa, Denver, Charlotte, and Seattle.
Cardone did not cite a particular source for his contention that these markets were overbuilt, though he alluded to a Redfin report from earlier in the year that likewise identified Austin, Seattle, and Denver as among the rapidly cooling property markets. It’s noteworthy to acknowledge that Cardone, a financial authority, has been embroiled in legal disputes recently, facing allegations of misleading investors, which he vehemently refutes while decrying the litigious nature of the legal system.
So, what underpins the concerns surrounding Austin and Seattle?
Austin underwent a noteworthy upsurge in popularity during the pandemic, attracting remote workers capitalizing on historically low mortgage rates. Nevertheless, the city is now grappling with the post-boom era. Despite its resilience in the face of challenges, such as rising interest rates, both home sales and median home prices experienced a decline in the initial half of 2023. Austin is regarded as one of the most overvalued markets in the United States, with homebuyers shelling out nearly 51% more than anticipated, as per Norada Real Estate Investments. Redfin characterized Austin as a “victim of its own popularity,” with a wave of affluent buyers propelling property prices during the pandemic, followed by a rapid surge in mortgage rates, pricing out numerous potential buyers.
On the flip side, Cardone voiced his apprehension about investing in Seattle under any circumstances. The city witnessed a substantial setback in its job market, as a significant wave of tech layoffs, akin to those experienced in San Francisco, reverberated through the Seattle economy. This downturn resulted in a diminished demand for home purchases. As of September, home sales in Seattle witnessed a 17.2% year-over-year decline, with home prices dropping by 4.6%. Homes also lingered on the market for a longer duration, averaging 29 days, signifying a 9.5% increase year-over-year, in line with data from Rocket Homes.
For investors in the realm of real estate, markets that are excessively developed, whether in the domain of residential or commercial properties, often grapple with an oversupply of properties, which can exert downward pressure on property values. This, in turn, can lead to diminished rental income, difficulties in securing suitable tenants, and ultimately, narrower profit margins. Overdeveloped markets typically witness a surge in vacancy rates, a scenario akin to what has been observed in the saturated office markets of cities like New York. This surge in vacancies can pose financial challenges for investors, who are required to meet mortgage payments, maintenance expenses, and other associated costs.
In the event that you find the complexities of choosing the right market, acquiring property, and assuming the role of a landlord unappealing, rest assured, there are alternative avenues to explore. You can explore investing in a residential real estate investment trust (REIT), which are publicly-traded entities that collect rental income from tenants and distribute it to shareholders in the form of regular dividend payments. Additionally, crowdfunding platforms offer an avenue for everyday investors to pool their resources to collectively acquire and own a portion of a property.