\n<\/p>\n
The real estate markets<\/strong> that have the highest populations tend to have the highest housing prices. Think of cities like New York, Los Angeles, San Francisco, and Seattle<\/strong>. Just a few years ago, these bustling metros were packed to the brim with tech workers, all of which contributed to housing shortages<\/strong> and sky-high home prices<\/strong>. Now, with remote work the new norm, these big cities are seeing their populations slowly start to siphon out<\/strong> to more affordable housing markets<\/a> in America.<\/p>\n As an investor, you may ask yourself, \u201cwhere are the most people (and money) headed?<\/strong>\u201d In this episode, Dave Meyer <\/strong>and David Greene<\/strong> will answer this exact question. But, it isn\u2019t as easy as solely looking at population growth. Dave and David go deep into the data to see where businesses, tech jobs, and high salaries are moving <\/strong>so you can make the best bet for future equity plays. And even though it seems like Miami, Austin, and other booming markets have already priced out most investors, recent price drops <\/strong>could be a short-term loss that leads to your long-term gain<\/strong>.<\/p>\n But even if you know where Americans are migrating, you\u2019ll still need to know the \u201cwhy\u201d so you can find future markets fitting these criteria. Dave and David touch on how work from home changed the <\/strong>housing market<\/strong><\/a>, why the pandemic split the nation <\/strong>into affordable and unaffordable housing markets, and how something as simple as a warm day could heavily impact where the best investing opportunity<\/strong> is. So stick around if you\u2019re planning on buying, investing, selling, or moving in 2023!<\/p>\n David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: Dave: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/em>sponsor page<\/em><\/a>!<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast show 729. When we talk about why, I think it\u2019s a combination of factors, but most of them are related to technology. So if you think about the \u201950s, what made someone determine where they\u2019re going to move? It\u2019s probably where dad\u2019s going to work. So, markets would explode stuff like New York or Boston. You had these areas, like you mentioned, San Francisco, where you had to be physically present because this is where things were done, Detroit, Michigan, right? You moved to where the jobs were. Well, internet has increased its capability rapidly in the last 10, 15 years, and we\u2019ve gotten to the point where now people are specializing, and they work from home all the time.
What\u2019s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast here today with my partner in crime, Dave Meyer, to talk about real estate by the numbers. Funny enough, that\u2019s the same book that he helped write with J Scott. We get into migratory patterns, absolutely. We get into data. We get into information. We get into objectiveness. If you like Excel spreadsheets, if you like to make your decisions on the firm bedrock of information, you are going to love today\u2019s show about where you should be investing in 2023.
Before we move on with that, today\u2019s quick tip is if you like this kind of information, if you listen to the show, you get all the way to the end. You say, \u201cThat\u2019s what I want more of. I want people telling me the numbers, the data, the statistics, the facts, the cold hard facts about where I should invest.\u201d Consider checking out the BiggerPockets\u2019 YouTube channel. Now, this is a podcast, and there are other podcasts, and those do go on YouTube, but in addition to that, we make additional content that you might not know about that never makes it into the podcast realm. It only goes on YouTube.
You could catch me on there talking about the nitty-gritty details of what it takes to have a career in real estate, or loan products you might not know about, or negotiation techniques that you need to tell your agent to be using. You could catch Dave on there talking about more information like this, what studies have been done, how to interpret that data, and what the next trend in real estate investing is going to be. So if you\u2019re like me, and you\u2019re addicted to YouTube, and you listen to it all the time, go follow and subscribe to the BiggerPockets\u2019 YouTube channel, and get more information in between the podcast that we try to release as frequent as we can.
All right, Dave, what were some of your favorite parts of today\u2019s show?<\/p>\n
I think today\u2019s shows is one of my favorite ones we\u2019ve done in a while, because this is one of those areas where investors can really gain an edge over their competition. This is like\u2026 If you\u2019re the kind of person who likes to research and understand what\u2019s going on around you, this is a great practical episode where you can learn some of the specific things that you should be looking for and identifying to pick markets. We\u2019re going to talk about where people are moving, why people are moving, where businesses are moving, and why they\u2019re moving.
If you can follow these trends, and extrapolate them out to what might happen over the next couple of years, you\u2019re going to be in a really good position to identify great locations and great markets to invest in real estate.<\/p>\n
Yes, and on today\u2019s show, we name names. We\u2019re not just talking principle. We get into the theories and the principles of why this works, and we actually give you specific cities that we think are going to do well and why. This is what nobody ever wants to do in our space, because if you\u2019re wrong, you look like a fool, and nobody likes that, but that\u2019s okay. Dave and I are willing to risk that in order to share where we invest and where we think that you can do well because we love you. All right, let\u2019s get into today\u2019s show.
What\u2019s going on? Dave Meyer, I\u2019m so happy you\u2019re here today. We get to talk about a topic that I love. As the author of Long Distance Real Estate Investing, I like to track where people are going, what markets are heating up. As the BiggerPockets host of the podcast, I like to talk about where people could be buying real estate, what listeners from BiggerPockets happen to listen in the hot city that everything\u2019s happening in, or a cold city that people are leaving. I think this stuff is really important. So glad you\u2019re here with me today. Can you just briefly explain to people why you are the person that we brought in to talk about this with us?<\/p>\n
Well, sure. It\u2019s a really fun topic to discuss, I think, as you just said, in normal times. But ever since the pandemic, basically, the trends of migration and businesses moving to new places has accelerated in a way we really haven\u2019t seen. A lot of the trends that we were used to are now the opposite, and we\u2019re seeing a lot of changes in where people are moving and where money is being invested. Obviously, this has implications for everyone and the whole country, but as real estate investors, we really want to know where population is growing, where money is being invested, because it has big implications for rent growth, for appreciation, for vacancy, for all these important things.
I\u2019m pretty excited to talk about this, because there\u2019s a lot of cool information that we\u2019ve gathered for you.<\/p>\n
We have several headwinds that have all joined together to create this huge rush that\u2019s made a lot of money in real estate in the last several years. We have the fed printing a whole lot of money, so you have this oversupply where this money needs to find a home. Then we have, obviously, COVID-19 and the way that that shook up the way that work is done, and so we have people moving into different areas based on all kinds of different reasons that we\u2019re going to talk about. Then we have the fact interest rates were incredibly low, so you really couldn\u2019t get any return on your money in most traditional cases, just like putting it in the bank.
So, you had to invest your money. You have a lot more money to invest, maybe not the individual, but the economy as a whole, and people are moving quicker. So if you got the right location, and all the money flooded to that place, you did really, really well. If you didn\u2019t get the right location, you still did well because assets in general, the prices of them-<\/p>\n
You got lucky.<\/p>\n
That\u2019s exactly right. But now that you see it starting to turn around, we\u2019re starting to head into a bit of a recession. The people who bought in the areas that appreciated the most, they\u2019ve got the most cushion, so they\u2019re going to be hurt the least when things turn around. That\u2019s why we\u2019re talking about this, because we always want to try to be ahead of what\u2019s going to be happening next. Let\u2019s start off, and just have you get into the great reshuffling as we\u2019ve called it. Tell me what\u2019s going on in the way that real estate investing has changed.<\/p>\n
I think basically, you\u2019ve hit on a couple of the major things that are happening. The first one, like you said, is the pandemic and just remote work. We saw that all sorts of people were working from home for the first time, and not that long into the pandemic, a lot of companies said, \u201cWe\u2019re actually going to make this permanent,\u201d and so people for the first time really in history were untethered from locations in a way that they never have. Historically, if you wanted to have a great job, you\u2019d move to where you are, David, in San Francisco or New York or any of these big major metropolitan areas that have strong job growth, strong wage growth, economic growth.
Now, people were saying, \u201cI can still make a San Francisco salary, or I can still make a New York salary and move somewhere else.\u201d What we\u2019ve seen just in terms of data, what\u2019s going on here is that the number of people who are moving out of state who are moving to a different metro area has exploded. Just from data from Redfin came out, and showed that of all the people searching on Redfin for homes, 25% of U.S. home buyers were looking to move to a new metro in Q3. That\u2019s up significantly from pre-pandemic levels, and it\u2019s still\u2026
We\u2019re no longer in lockdown mode anymore, and we\u2019re still seeing this elevated sense of migration. So, I think what I was hoping to talk about a little bit is what happened over the last couple of years, and are these trends likely to continue?<\/p>\n
I think that\u2019s a great place for us to jump off here. Let\u2019s get a bit of a foundation and understanding what led to the change, and then let\u2019s talk about what we think is going to happen. Then before we do, I just want to highlight why we\u2019re talking about this, why it\u2019s important. In the past, it\u2019s been enough with real estate to just teach someone how to analyze a property. What\u2019s it going to cash flow? Is it going to make or lose money? Add a little bit of sauce on the top. Can you throw a little bit equity in there? Can you upgrade a little bit?
Boom, you\u2019re good. You got a property, and that\u2019s going to take you to financial freedom if you just repeat it a couple times. There has been so much changing in our industry that it gets a little bit more complicated with every single change, and you need a little bit more information to stay competitive in this market. That\u2019s why we\u2019re bringing this information. That\u2019s why we\u2019re not just only bringing in the story of the gym teacher that bought four duplexes, and now they\u2019re done, and they don\u2019t have to work. It\u2019s getting harder and harder to do that, but at the same time, it\u2019s getting more and more important that you are investing in real estate.
That\u2019s why so many people are flooding into the space, because they\u2019re recognizing the safety, the long-term benefits, and the fact that when you compare it to other investment options, they don\u2019t stack up at all. The word is out. More people are hearing about this. We just want to bring more information so you can stay ahead of the others that are chasing after these same vehicles.<\/p>\n
That\u2019s a very good point. I mean, there is also a good point about what you said earlier that even during the pandemic, it didn\u2019t matter where you invested because everything was going up so much, but we\u2019re not in that market anymore, and different housing markets are going to start to behave different from one another, which is normal for the record. Having some markets that are better for cash flow, and having some markets that are better for appreciation is the normal state of affairs. We were just in this crazy abnormal situation for the last couple years.
So, by studying and understanding different markets and some of the trends about population, migration, where money\u2019s being invested, you\u2019ll have a good sense of what markets are likely to withstand this downturn the best, and likely to start growing again in the future the soonest and the most dramatically. All right, so now you know why we\u2019re talking about this, and why this is important. We know that people are moving a lot, and they\u2019re continuing to move more than they used to. So before we jump into where they\u2019re going and what this all means, maybe we should hit a little bit on why people are moving from where they currently live.<\/p>\n
That\u2019s a great point, because if you can understand the why, you\u2019re more likely to predict what will happen in the future. First thing I\u2019ll say, I think this is going to continue in even more frequency as we go. People are moving more than they ever did before. It\u2019s more important to know it than they ever did before. I don\u2019t think this is a fad. I think this is going to continue. I think if we look at the next 5, 10, 15, 20 years, you\u2019re going to see an increase in the velocity of human beings jumping around between markets and businesses probably doing the same thing.
When we talk about why, I think it\u2019s a combination of factors, but most of them are related to technology. So if you think about the \u201950s, what made someone determine where they\u2019re going to move is probably where dad\u2019s going to work, right? Back then, you got dad\u2019s going to work. Mom\u2019s staying at home, raising the kid. We have very traditional gender roles that people are operating through, and you can\u2019t\u2026 There\u2019s no Zoom calls. There\u2019s no internet. You are driving into a physical location to attend meetings in person. I\u2019m sure some stuff was done over the phone, but I don\u2019t think it was very much.
So, markets would explode stuff like New York or Boston. You had these areas, like you mentioned, San Francisco, where you had to be physically present because this is where things were done, Detroit, Michigan. You moved to where the jobs were. This is the way that human beings have been for a very long time. If you go back before jobs, you have the Native Americans following the bison across the planes like, \u201cI got to go to where I get my food, which now is our work.\u201d Well, internet has increased its capability rapidly in the last 10, 15 years, and we\u2019ve gotten to the point where now people are specialized, and they work from home all the time.
We had the capability to do that, but we just didn\u2019t break out of the pattern. Then COVID-19 hit, and that was a pattern disruptor. You absolutely had to change the way you\u2019re doing things, because you could not leave your house. So as they say, necessity is the mother of invention. People change the way that they operate in the workspace, and you started seeing more people working from home. Now, you also see that people can learn skills much faster, because we have technology-assisted abilities in the workplace. So if you\u2019re someone who writes code on computers, you can learn how to write new code faster in different ways.
If you work for a company, and you\u2019re in sales and marketing, you probably don\u2019t have to be in that company. You\u2019re probably locked into your computer studying algorithms of different social media websites. A lot of these tech-based jobs can be done anywhere. So, you got this niche where people can bounce around from different job to different job, and they can work from home. Then COVID-19 happens, and the place where certain people lived had its resources shut down. So where I\u2019m at in San Francisco, it was terrible. I don\u2019t live in the city of San Francisco, but I sell a lot of houses there, and they just shut down everything.
It was so hard to sell anyone on why they should live in San Francisco, because all the restaurants were closed. All the nightlife was closed. All the museums were closed. All the reasons that people want to be in San Francisco, they disappeared. Same thing happened in New York. Basically ,two of our biggest hubs for business in the country had the same thing happen. Some people moved into the suburbs, or they moved into new states. There were political differences, and I think we can agree that there\u2019s becoming a bigger spread in the spectrum politics every year.
So certain people said, \u201cI don\u2019t want to live in a state that\u2019s this way, or I don\u2019t want to live in a state that\u2019s that way,\u201d and they moved to a different state. After a couple years of doing this, we figured it out. It became easier and easier to go from one area, and work one job to another area, and either work that same job or get a new job. Then technology increased with stuff like Airbnb and VRBO, and we had more people putting supply into the market, and so it became much easier to live in a new area. It used to be you stayed at a hotel that was super expensive, or you had to commit to a lease. Landlords like us don\u2019t want to commit to a two-month lease for someone. It was a 12-month lease.
So if you didn\u2019t know anyone in the area to move to, it was very hard to go get there, get established, set a foothold, figure out if you like it or not, and then make a long-term solution. Well, now Airbnb makes that so easy. You\u2019ve got expensive options if you want to move your whole family into a big house. You\u2019ve got cheap options if you just want to live in someone\u2019s basement, and sleep on a pullout bed. It has become so easy to bounce around from location to location that people have figured this out, and what used to be a dream, \u201cI want to make a bunch of money and quit and retire so I can travel,\u201d is now something that you can do while you\u2019re still working.
You don\u2019t have to wait until you\u2019re 50, 60, 70 years old to retire and travel. You can do it at the same time. You\u2019re doing your work right now from Amsterdam. Are you in Amsterdam today?<\/p>\n
I am.<\/p>\n
So, you\u2019re the perfect example of the person who is able to do a great job at their job, also work a side hustle hobby of sandwich connoisseurship if I can say so, and do it from different locations in the world. This is happening all over the place, and understanding these patterns and these trends will help investors buy in the areas where there\u2019s going to be rising demand.<\/p>\n
Absolutely. I think one of the things you talked about, I just want to follow up on, which is that people used to have to move to these places to get good paying jobs like New York or San Francisco. We\u2019re just picking on those two. You\u2019re from around San Francisco. I grew up around New York, so we can pick on those cities, but basically, what happened though is because they offered in many cases the highest paying jobs or the highest concentration of high-paying jobs, there was so much demand that those places got insanely expensive. It\u2019s not a coincidence that San Francisco and New York are two of the most expensive real estate markets in the world. It\u2019s because people want to live there, because they want to have access to those very expensive jobs.
Now, you\u2019re saying, \u201cOh, I can get that San Francisco or New York salary, but I don\u2019t have to live there. I can go to Nashville, or I can go to Dallas, or I can go to somewhere in Florida, and live.\u201d It\u2019s basically getting a raise. You could be getting a 20% or 30% raise. People were doing this, and companies over the last couple years who have been struggling to find employees were allowing people to do this, because it was a way for them to basically give their employees a free raise as well. If you\u2019re Facebook or Twitter or Google or whatever, if you say you can take your San Francisco salary, and move to wherever you want, you\u2019re giving them a much higher quality of life, and I think for just cost of living wise.
I think people really wanted to take advantage of that. I don\u2019t necessarily think they\u2019re going back. I know you hear some of these high profile things where people are getting called back to the office, and some are. But if you actually look at the data about how much people work remote, it\u2019s pretty stable. It peaked a couple years ago. It has come down a little bit, but now it\u2019s pretty flat. So, I think we are going to continue to see people able to work remote. To your point, David, I think that\u2019s going to just increase this transience among people going forward.<\/p>\n
Well, I think in some of the places that we\u2019ve seen more people moving to than anywhere else, like the winners that are going to show up here, a lot of these were places that typically people only went to when they retired, which means they wanted to be there. It had a lower cost of living, a better client, more amenities, but they couldn\u2019t. They had to wait till they were done. You think Florida\u2019s exploded. That is our typical retirement community of America. Everybody waits to retire the move to Florida. You\u2019ve got Arizona. Arizona has exploded in demand as Californians have realized it\u2019s a little bit hotter, but it\u2019s not a whole lot of different climate than what we\u2019re used to, but it\u2019s a third as expensive as the Bay Area.
Like you said, it\u2019s a huge\u2026 it\u2019s like getting a raise to move there. Texas has been a place that typically like you were just from Texas or that was it. Nobody was going into Texas, but the people that lived in Texas loved it. Now that the word is out, I\u2019m sure the Texans don\u2019t love this that are listening to this, but everyone else wants to go there. Tennessee was another place that a lot\u2026 It was like a niche market. You were a musician, and you went to Nashville to try to make it. It was like the Hollywood of the south a little bit, or you retired, and you moved up there. But if you lived in Tennessee, you knew about some of the gems, like the Smokey Mountains, Nashville, the areas that people wanted to go vacation to.
Now, you can just live in those areas. People are\u2026 They wanted to be there the whole time, but their job was restricting them. As we\u2019ve cut the tethers of your workplace requiring you to be someone, we see people naturally going to where they wanted to go. That\u2019s one of the reasons that I invest in those markets. I don\u2019t see that changing in the future.<\/p>\n
100%, totally agree. Before we move on, I just want to say, David and I have been talking a lot about price-wise affordability. I do think that is probably the number one major driver people want to go where they want to go. But when we look at some of the data to why people are moving, I just also want to say that some of the things that we\u2019ve noticed are, one, income tax. States with no or low income tax have been major winners like Nevada, Texas, Florida.<\/p>\n
Tennessee.<\/p>\n
Tennessee. Exactly. There you go. Then a lot of times\u2026 This is pandemic related too, but just a lot more space. People who were living in small spaces when you were confined to your home wanted bigger areas, so we saw suburbs really take off as well. Places that had affordable suburbs were other areas that really we\u2019re seeing a lot of net migration, and are still seeing a lot of net migration. All those things combined have led to this trend, and now we have seen and have some winners and losers that we can actually share with you over the last couple of years, which markets have seen the most and most people lost and the most people gained.<\/p>\n
It\u2019s funny. Three years ago, I was doing real estate meetups in the East Bay Area, and people would say, \u201cYou wrote long distance real estate investing. Where should I buy it?\u201d I was like, \u201cEveryone overthinks it. We overthink it so much.\u201d You want to buy in places with warm climate and low state income tax, because the people who are making the most money are living in New York and California. They\u2019re paying the highest in taxes, and people in New York don\u2019t like the cold. They would rather live in the warm, and people in California can\u2019t live in the cold. We can only live in the warm because we\u2019ve been spoiled.<\/p>\n
You\u2019re not adapted to the cold.<\/p>\n
Yes. It\u2019s like 50 degrees over here, and everyone\u2019s complaining like, \u201cThis is ridiculous. We\u2019re going to die. My petunias can\u2019t make it in this 50-degree weather.\u201d We don\u2019t adapt at all. I said, \u201cYou should invest in Texas, Tennessee, and Florida. That\u2019s it.\u201d Find the areas that someone would move to to start, and those places have exploded, and everybody has made money that\u2019s invested there. It really can be simple when you understand the principles that we\u2019re about to get into now.<\/p>\n
Hopefully those people listen to you.<\/p>\n
All right, so Dave, the numbers guy, the data guy I should say, tell me, what is Redfin statistics on this trend? What\u2019s the data telling us?<\/p>\n
Well, we\u2019ve been picking on New York and California, and I will say that those are the two cities, two states, excuse me, that had the largest out migration. New York, over the last couple of years, has lost 180,000 residents, and California has lost 300\u2026 No, excuse me. They\u2019ve lost 343,000, but they gained another 150,000. Like we\u2019ve been saying, you see, if you look at this and dig into it a little bit more, a lot of it is from the New York City area, San Francisco and LA areas. They\u2019re very, very expensive, and we\u2019re going to talk about that in just a moment.
A lot of this, I believe, is not just personal lifestyle, but you\u2019ve seen a lot of companies move out of San Francisco and LA. You\u2019ve seen a lot of finance companies, for example, leave New York, and head to Florida. Those aren\u2019t super surprising. The other general area that has lost a lot of population is the Midwest. People are leaving Illinois and Ohio, and where they\u2019re heading, no surprise, some of the states that we\u2019ve already named, which are Florida, which gained a net of 400,000 residents. Texas has also gained 400,000 residents, and now is the second state after California with over 30 million residents.
The other ones are all in the south. Arizona, North Carolina, South Carolina, Tennessee, and Georgia lead the way in terms of cities with a ton of migration. I\u2019m guessing you are not surprised by anything I just said.<\/p>\n
No, I think\u2026 Man, it\u2019s not too hard to see the writing on the wall. Florida was the only state doing things the way they did, and because of that, what was the net addition to people that moved there? Was it 500,000 you said?<\/p>\n
400,000.<\/p>\n
400,000, that\u2019s a lot of people moving into an area that doesn\u2019t have enough supply of homes. It\u2019s typically only retirees that are moving into Florida, or immigrants that are on that part of the world. So, you\u2019re seeing a massive amount of houses that are being built. Florida\u2019s trying to adapt to this. There\u2019s subdivisions going up everywhere. Prices are increasing super fast. The Floridians, they think they\u2019re in a bubble. They\u2019re over there like, \u201cThat house used to cost 300,000. Now, it\u2019s costing 440,000. This is ridiculous,\u201d but the New Yorkers are like, \u201cI was paying 1.2 million, and I could go live there for 440,000, and it\u2019s warm. Sign me up.\u201d<\/p>\n
I mean, my friends who still live in New York would pay 1.5 million for a one-bedroom apartment. It\u2019s nothing to them. They still see that this is a good deal, but I do think it is just\u2026 I will say this is a tangent, but Florida is one of those states where it\u2019s really depends what city you\u2019re in. Some markets are just humming along, which we\u2019ll get to in a minute. Some I think might be at risk of oversupply, but regardless of supply, people are moving there. A lot of people are moving there, and that trend does not seem to be slowing down.
We wanted to talk about another thing here, which is not just that people are on the move, but businesses are really on the move. It was actually\u2026 It\u2019s hard to find data for this. I was surprised at how difficult it was, but I\u2019ve seen some evidence, and I think we just know this anecdotally, that there\u2019s a lot of businesses moving their headquarters. I could only find data that was reliable, that goes back to 2009. So, it\u2019s not really all pandemic related, but just over the last decade, we\u2019ve seen that some of the major winners for businesses moving places are at the same places, so Arizona, Florida, Texas, but also Illinois, which I find was strange, because people were moving out of Illinois, but they\u2019re gaining businesses which doesn\u2019t really make so much sense.
Then losers were California, New York, and Nevada, which I was also interested, and Utah, because Utah and Nevada, they weren\u2019t on our list of places where most people are moving, but Nevada and Utah have absolutely seen a lot of population growth over the last couple of years. I mean, Salt Lake City is one of the fastest growing real estate markets in the country. I just thought that was really interesting. I mean, Texas and Florida are making a lot of headlines, but to me, this is a really interesting long-term trend that we might just be seeing the beginning of. Because like you were saying with how people can move now in terms of Airbnb, and it\u2019s made it more easy, look, just go look at what vacancy rates on offices are around this country.
They are exploding. So if there was ever a time where office\u2026 You want to move from New York to Miami or wherever to wherever. Now is pretty good time to negotiate a good office. There\u2019s a lot of flexibility. People might be willing to leave, and so I think this is one of those trends that, I think, really did start to pick up. I don\u2019t have a lot of data on this, but this is just my anecdotal opinion that really started to pick up during the pandemic, and I think is going to increase a lot over the next couple of years. What do you think about that?<\/p>\n
I think this makes perfect sense with what we\u2019re just describing. If we\u2019re talking about people needing to be in a specific location to work less, but then wanting to travel more, you\u2019d expect office space to decrease within areas, because people don\u2019t have to go to an office to work. They\u2019re working from where they live, and you\u2019d expect demand to increase in the residential space. That\u2019s exactly what we\u2019ve seen. Specifically within the short-term rental markets, you\u2019ve seen increasing demand, which has been so much that even as supply has flooded the market, we all know someone out there who\u2019s like, \u201cOh yeah, we just threw our house up on Airbnb, or we put a trailer in the backyard.\u201d
Everyone\u2019s doing this, which is funny because it\u2019s not a thing that you would think could be supported if everyone threw their properties up. It\u2019s not meant to be something everyone can just do. You have to match supply with demand. Yet, there\u2019s been so much demand that so many people have put stuff up there, and they\u2019ve done well, and then, like you said, commercial space, office space, it\u2019s becoming very easy to lease and very difficult to manage. I bought into some office space, and vacancies have been up. It\u2019s been harder and harder to figure that out.
You and I have brought guests on to talk about what we\u2019re going to do converting some of this commercial space into residential space, because demand across the board is going down for those locations. I think that part makes sense, but I also thought another interesting factor that you brought up was that some of the areas where businesses are moving into have people moving out. What\u2019s your thoughts on why that might be happening, some of those states?<\/p>\n
I have two ideas about this. The first one is the inverse of what we were talking about where people used to move to cities where there were good paying jobs, but companies used to also move to places where there was a good talent pool, where they had the type of people who could fill the jobs that they need. Now, if those people are spreading out from San Francisco or New York, the businesses have the same incentive to leave those expensive markets that people do. So if you could get maybe in Illinois or wherever, Utah, wherever these places are, maybe there are cheaper places. Maybe there\u2019s cheaper for office space.
Then the second thing I wanted to say is that there is\u2026 I listened to this podcast about this, but states and cities are just at war with each other with tax incentives trying to bring companies in. I listened to this podcast. It was crazy about\u2026 You know the city, Kansas City, obviously. It\u2019s split between Missouri and Kansas. Apparently, every couple of years, they just move. The companies will just move back and forth across the river because Kansas will be like, \u201cWait, you won\u2019t pay taxes for 10 years.\u201d Then Missouri will be like, \u201cYou won\u2019t pay taxes for 12 years,\u201d and so they\u2019re all doing this.
I think that now because a lot of companies, workers are remote, they can take advantage of these tax advantages that states are throwing at them. So if it\u2019s like\u2026 If you run a business, and it\u2019s going to cost you 20% less whatever in taxes to move to Nebraska, maybe you do it because your employees wouldn\u2019t even care, because they\u2019re remote anyway. That\u2019s just my personal opinion. That\u2019s not really backed up by any data, but I was thinking about it, and that\u2019s where I came out. What about you?<\/p>\n
You\u2019re exactly right. We saw that play out with Tesla. With Elon Musk in the Bay Area, they have a Fremont plant, and there\u2019s all these regulations that are put on them. Taxes are very high. That\u2019s where the talent pool has been is the Bay Area is known for having some of the brightest minds, because we have Stanford and Berkeley, two colleges that are known for attracting the brightest minds. People move here. They get exposed to that California weather and California amenities. They don\u2019t want to leave.
I mean, this is\u2026 California is expensive, but it\u2019s expensive for a reason. We\u2019ve got mountains. We\u2019ve got beaches. We\u2019ve got deserts. We\u2019ve got incredible urban infrastructure, restaurants, all kinds of really cool things in diversity that once you see this, you\u2019re like, \u201cOh, I wouldn\u2019t want to live anywhere else,\u201d but we also have high taxes. We also have a lot of regulation. There\u2019s negatives that come along with that. He was basically saying, \u201cI\u2019m going to move to Texas, or I\u2019m going to move to Nevada. I\u2019m going to move somewhere that I wanted.\u201d
Those states that said, \u201cCome here. We want you,\u201d where California\u2019s making it look like, \u201cWe don\u2019t want you. We want your money. We want your taxes, but we don\u2019t want to support your business.\u201d That absolutely happened, and as I was just saying, when people or businesses see someone else does it, they\u2019re more likely to follow suit. You see a lot of businesses leaving California, and moving into Texas. It\u2019s like you mentioned. It\u2019s like getting a raise for them too. If their employees were paying a 13.5% state income tax, and they could go to Texas where there\u2019s a zero state income tax, they can pay them the same amount, but claim that they gave a 13.5% raise. It\u2019s absolutely true.<\/p>\n
The employees feel that. They actually feel it.<\/p>\n
It is easier to save money than it is to make money. That\u2019s one of the things I talk about all the time. Even if you make money, that money gets taxed. Well, when you save money, you\u2019re not having to pay taxes on what was saved. So, I think it\u2019s fascinating that different businesses are recognizing that different states offer different opportunities. So even though the California population did decrease, I think you mentioned more businesses moved into California. Is that correct?<\/p>\n
That\u2019s true.<\/p>\n
That\u2019s the talent pool. Those are the types of businesses that are saying, \u201cWe need this kind of brain, and these people aren\u2019t leaving California, so we are willing to go there and pay more money to get them.\u201d But if you\u2019re a different business, maybe you\u2019re an international business that\u2019s not dependent on the California amenities like the talent pool, you\u2019re absolutely going to go to Tennessee, and you\u2019re going to save some money. It\u2019s not as simple as just understanding, \u201cAre they coming in, or are they coming out?\u201d That\u2019s where the conversation starts. The next question is what types of companies are coming in, and what types are coming out?
Tech has notoriously been known for paying more wages than other industries. Those companies are in California still. Silicon Valley is still the hub. That\u2019s one of the reasons that real estate in that area is so dang expensive, because the wages are incredibly high.<\/p>\n
They\u2019ll make so much money.<\/p>\n
So much money. If you buy in those areas where tech jobs move, you tend to do really well. If we could travel back in time 10 years, and buy a lot of Seattle real estate, Austin Real Estate, San Francisco Real Estate\u2026 Birmingham Alabama\u2019s even had some of the tech company move out there. Madison, Wisconsin has seen a lot of that. South Florida has seen\u2026 Those are not coincidentally the areas that we\u2019ve seen the biggest spike in prices, because the wages that were paid went up a lot. So, understanding not just are businesses moving in and out, what kind of businesses.
If you\u2019re a tire manufacturing plant, you don\u2019t need to be in San Jose, California. You can absolutely go to Nevada, and save a lot of money. But if you\u2019re working on the next microchip, and you\u2019ve got 700 moving pieces that all have to come together to make that happen, you probably have to be where the people are.<\/p>\n
Absolutely. It makes sense. I think that one of the\u2026 We\u2019ll talk about this in just a couple minutes, but one of the major things as an investor that you want to see is wage growth. That is one of if not the best predictor of rent growth in your city and appreciation for homes. So if you see businesses that are paying high wages, that happens\u2026 That bodes very well for real estate investing. It\u2019s not just those things. If you think about something like Tesla or all these other companies moving to Austin all at once, think about how much money the city then has to invest into infrastructure.
They\u2019re going to be hiring engineers. They\u2019re going to be bringing in construction workers. They\u2019re going to be building a new airport terminal, all of these things that increased demand for housing, increased demand for rentals, increased demand for just shoots up prices across the board. That\u2019s why we\u2019re talking about this is that it\u2019s not just interesting to see, but it does have actual implications for these local economies.<\/p>\n
100%. Now, let\u2019s talk a little bit about the south, because on this podcast, we\u2019ve been talking about this for a long time. I\u2019ve made the joke that if you take the United States of America on a flat plane, and you just tilt it down into the right, that\u2019s where everybody tends to be moving into, and it\u2019s been this way for a long time. My partner, Andrew Cushman and I buy multi-family property. We\u2019re only buying for the most part in the south. We\u2019ve done very, very well in these, because we\u2019ve seen so many more people moving there, and the demand has increased faster than supply. It can\u2019t keep up.
For a long time, that was all you had to do. Just go by somewhere in the south, and if it happened to be an area that wages were increasing, you crushed it. This is why knowing this information matters. So, what\u2019s some of the data and the numbers on where people are moving in the south?<\/p>\n
So if you look at businesses, it\u2019s Texas, Florida, Tennessee in the south, but I did pull some data about just some of the cities that overlap in terms of the most popular places for both business to be moving, and people. On a state level, it\u2019s Florida, Texas, and Arizona. That\u2019s not super surprising, but like we said for the combination of reasons why people are moving Florida, Texas, and Arizona. If you want to know specific markets though, it\u2019s not that easy. We talk about it on the show, and this is my fault talking about it at a state level, but each market is super different.
Let\u2019s just talk about specific cities. Dallas is really one of them. Atlanta, which we haven\u2019t talked a lot about Georgia, but Atlanta has to be one of the fastest growing in terms of population and businesses. Atlanta is just absolutely exploding. Austin, of course, Tampa and St. Pete, Raleigh, Durham, Miami, Phoenix, Charlotte, these are all just massive. Raleigh, all these cities are just enormously and exploding. There was one in the north though. Boston was one of the top 10, but all the rest were basically in the Sun Belt as they say, which is, I guess, the south but also includes Texas and Arizona.
I don\u2019t know what you call Arizona if that\u2019s technically the south, but the whole Sun Belt area seems to be just absolutely exploding, and those markets are at the top.<\/p>\n
That\u2019s the perfect mix here of where people are moving and businesses are moving. Now, the only question left to ask is are these businesses that tend to pay better? Now, there\u2019s one thing I want to point out, where when people are just headline readers, and they don\u2019t ask the why, it\u2019s very easy to see markets like Phoenix or even Tampa that\u2019s been listed in their Las Vegas as they\u2019re dropping in prices. It would appear from the outside like, \u201cOh, that\u2019s a declining market. You want to get out of it. You don\u2019t want to buy there.\u201d
They\u2019re dropping because they rose so freaking fast. It was almost impossible. They were skyrocketing, and they finally tailored off, and they\u2019re correcting to where they need to be, but they are set up to where you should expect to see long-term growth in those markets over the future. It doesn\u2019t mean jump in and pay list price right now. We\u2019re not saying that. You probably don\u2019t have to get into a bidding war if you\u2019re buying in Arizona, but if everybody else was in a frenzy, and they bid these prices up, you can now come in and get them significantly less than less price if you make the right offers and you work with the right agent.
Shout out to BiggerPockets\u2019 agent finder here. Use that if you want to find someone on BiggerPockets to help you do that. But over the next five to 10 years, there is a reason why they were shooting up. There is a reason why those markets had so much demand is the smart money is looking at this, and they see, \u201cThis is where people are moving. This is where business are moving.\u201d We do have a window with rising interest rates where you can get in there, and get some of these properties, whereas before, it wasn\u2019t even possible.<\/p>\n
Totally. I think similar to you, people ask me a lot like, \u201cWhere should I invest?\u201d Over the next few years, I think that there\u2019s this interesting dynamic where the cities and markets that have the best long-term potential have the worst short-term potential right now and vice versa. So it\u2019s like\u2026 You look at Austin. Austin is crashing harder than any city. Austin is going to explode over the next 20 years. I try and not time the market, but like you said, you can try and bid under asking, find a diamond in a rough right now, because Austin is one of those cities where it\u2019s like people are going to want to move there. Businesses are moving there.
Austin\u2019s the poster child for everything we were just talking about. Same with Tampa. Cities like that are going to keep doing well. Tampa\u2019s actually doing okay right now, but I think there is a really important difference between what\u2019s going to happen in the next, let\u2019s say, 12 to 24 months, and what\u2019s going to happen in the next 10 years. Those are not necessarily the same thing, and so as an investor, you really have to think about that. I\u2019m not sure I would flip a house in Austin right now, but would you find a great deal, bid under asking, and find a great location in Austin, and hold onto it for 10 years? Probably.<\/p>\n
Let\u2019s sum up some of the advice that we have for the people. One of the points here is you should watch migration patterns closely. It is not enough to say, \u201cWhere is the cheapest real estate, or where is the highest price to rent ratio right now without thinking about the future,\u201d because real estate\u2019s great over the long term, but one of the downsides of it is you own it for a long time. It\u2019s been traditionally easy to sell, but that doesn\u2019t mean it will stay that way. If you buy in a market that people are leaving, you can\u2019t think, \u201cI\u2019m just going to sell if it doesn\u2019t perform well,\u201d because there\u2019s no one to buy it.
It\u2019s hard to get rid of it. That\u2019s a thing we need to be thinking about more in the future is we\u2019ve just assumed buy as much real estate as you could possibly own. We haven\u2019t even had to worry about where. If you\u2019re in one of these areas where people are leaving like some of the areas in the Midwest, and you go buy five or six properties there, and it gets harder and harder to get tenants, and the tenants you\u2019re able to get are worse and worse, and you\u2019re not wanting to own. Don\u2019t think, \u201cI\u2019ll just sell it,\u201d because no one\u2019s going to buy it. It doesn\u2019t work that way. But watch these patterns closely, and try to get out of markets early that people are leaving, and get into markets early that people are moving to.
Look at the types of the jobs and the businesses coming to a city, not just is their business coming. We use the example of the hypothetical tire manufacturing plant versus a tech company that\u2019s trying to make the next super, duper microchip. Then look at how this will impact the overall makeup of a market\u2019s economy. Are businesses moving in that bring other businesses with them? If you look at commercial real estate, you see the same pattern. They\u2019ll take an anchor tenant like a Target. They\u2019ll put this in a shopping center, and then you\u2019ll have all these little additional tenants that will jump on like the place you get your haircut.
Do you notice there\u2019s always the ice cream shop next to a haircut place?<\/p>\n
There\u2019s always a Chick-fil-A. They follow them around. It\u2019s an actual thing. We talked about this on the market show the other day. It\u2019s like the Chick-fil-A follows around Lowes. They do it on purpose.<\/p>\n
They\u2019re smart to do that. I noticed there\u2019s always a [inaudible 00:41:13] around. There\u2019s ice cream next to the haircut place, because every parent wants to get their seven-year-old to sit still, and they say, \u201cIf you do, I\u2019ll take you to go buy ice cream\u201d. They know a certain demographic of people shops at Target, and if you put stuff next to Target that\u2019s convenient for people that are shopping there, they\u2019re more likely to go and buy those products, or get that food or whatever the case will be. Real estate in general works this way, so look at what types of companies are moving somewhere. Think about the type of human being that\u2019s going to want to follow that, and then think about what type of real estate they\u2019re going to want to own.
This is why for so long when companies were like Austin, Texas was exploding, high rises was the flavor of the month. Everyone was building these high-rise condos in pristine locations. You were seeing redevelopment happening, where they were tearing down a two-story building, and replacing it with a 200-story building right next to the downtown area that everybody wanted to live. That was the trend until COVID-19 shook that up. Think about that. Don\u2019t just blindly follow where you see other investors going. Dave, anything you want to add about that?<\/p>\n
No, just that similar to how I was saying that you shouldn\u2019t look at a state, and be like, \u201cEverything is one way in that state.\u201d You need to look at the market. I would say that look at even in the submarkets in a city as well. You talked about Birmingham, Alabama. I did an investment there. They are losing population on a macro scale, the whole metro area, but there are some areas of Birmingham that are absolutely exploding. I\u2019m sure when you, David, talk about \u201cthe Bay Area,\u201d there are so many different submarkets within the Bay Area that are performing really differently.
So, don\u2019t just look and read the headlines. Again, the more you dig in, the more you look at this data on a really specific basis, the better you\u2019re going to make decisions.<\/p>\n
Such a good point. The people that need to hear this are the people that are unfamiliar with the market, because what happens is you don\u2019t know the Bay Area. You don\u2019t know Birmingham. You\u2019re going to go look for the cheapest real estate you can find, because that\u2019s the safest. At least that\u2019s what you\u2019re thinking, that you need to talk to an agent.<\/p>\n
Not the safest.<\/p>\n
No, it\u2019s almost always the opposite, right? I have people that say, \u201cHey, I\u2019ve been looking to invest in the Bay Area, but it\u2019s really, really expensive. So, what do you think about Stockton, California?\u201d That\u2019s one of those. I know that area very well. I grew up near there. I went to college there, huge red flags. You better be super careful if you\u2019re going to be investing in Stockton. You need an agent that knows the market really well, so some questions that people can ask when they do use their BiggerPockets agent finder, or they reach out to me, or they reach out to you, and say, \u201cHey, I need an agent in that area that you know.\u201d
Ask them what type of people live in this city? What are they doing for work? What\u2019s industry like here? In these neighborhoods, what type of people live in these neighborhoods versus those? Is this a commuter area? Is this an area where people have\u2026 It\u2019s high walk scores, so they don\u2019t even need to have a car. They\u2019re just going to stay in this space all the time. Have a really good understanding for what types of people want to live both in the city and in neighborhoods within the city before you commit to this 30-year mortgage you\u2019re going to be making on this house payment.<\/p>\n
Absolutely. I think that\u2019s great advice.<\/p>\n
All right. Well, Dave, if people want to hear more about your studies, your data collection, where can they do that?<\/p>\n
Well, I host a podcast twice a week called On The Market. It\u2019s also made by BiggerPockets. You can find it on Spotify and Apple. It comes out every Monday and Friday. The whole premise of the show is basically to keep investors up to date on all the latest news, data, and trends that should inform your investing decisions. So, you should do that. If you want to actually reach out to me and connect, you can find me on Instagram where I\u2019m @thedatadeli.<\/p>\n
Yes, and I highly encourage any of you here to reach out to Dave for questions about real estate data, or questions about sandwiches. He is a highly underrated sandwich expert. He is the guy. He\u2019s my go-to person every time I\u2019m not sure, \u201cDo I want this Buffalo Chicken Ranch, or should I stick with a turkey and avocado?\u201d Dave is a whizz. In the same way that people come to me on Seeing Greene, and they say, \u201cI\u2019m stuck. I don\u2019t know what to do,\u201d I can go to Dave every single time if I\u2019m not sure if I want to get the aioli or just a straight mayonnaise. He knows the questions to ask. He\u2019s the guy to of to.<\/p>\n
Oh my God. What a topic. We could talk\u2026 This could be a whole episode.<\/p>\n
All right. If you want to reach out to me, you could do so at davidgreene24 on Instagram or on YouTube or anywhere else. As always, if you didn\u2019t know, BiggerPockets has more resources than just this podcast. There\u2019s an entire website, an entire world, an ecosystem of information, amazing forums that you can read questions other people have asked and had answered, or you can ask your own, a host of books that you can buy at biggerpockets.com\/store, honestly, more than I could say on this episode, and I couldn\u2019t do it justice anyway.
So if you got a minute, just type in biggerpockets.com, and get lost exploring all the ways that we provide value for you, including a lot of Dave\u2019s work on data and reports that he\u2019s put together. All right, I\u2019m going to let you get out of here, Dave. Do you have any last words before we go?<\/p>\n
No, thanks for having me. This was a lot of fun.<\/p>\n
This is David Greene for Dave, the sandwich guru, Meyer signing off.<\/p>\n