May 20, 2024 | Reading Time: 4 Minutes
Historically, real estate investment has yielded substantial returns. The S&P 500 Index reports that the average annual return on commercial properties is about 9.6%, slightly lower than the 10.3% return on residential properties.
However, real estate investment carries inherent risks. Factors such as market timing, location, demand, and property appreciation can all influence returns.
Given the critical importance of location, here are 10 cities where several experts avoid investing in real estate:
Chicago
The average home value in Chicago is $296,901, reflecting a 4.4% increase over the past year. Despite this, liquidity issues make the city less attractive for real estate investment. The state is fiscally irresponsible and in a bad position. Property taxes in Cook County have increased dramatically, making it a challenging market for investors.
Detroit
We advise against investing in Detroit. The city has a high vacancy rate of 35%, largely due to the decline of the automotive industry. It is very difficult to find reliable tenants and sell properties in this market. The average home price in Detroit is $73,843, with less than a 2% increase from last year.
San Francisco
San Francisco’s real estate market is known for its high prices, with the average home valued at $1,296,843, despite a 1.6% drop over the past year. The city’s high cost of living, combined with safety and livability concerns, makes it an unattractive investment.
Baltimore
Baltimore presents significant risks due to its high crime rates (55.4 violent crimes per 10,000 residents in 2022) and a declining population (1.2% decrease between 2020 and 2022). The average home value in Baltimore is $187,223, showing a 5.3% increase from last year, but these issues still cause concerns.
New Orleans
New Orleans faces challenges like high crime rates and sluggish economic growth. The average home value is $247,524, which is a 6.4% decrease from the previous year. Additionally, high property insurance rates and vulnerability to natural disasters make it a risky investment.
New York City
Investing in New York City requires significant capital and expertise. The average home price is $748,012, with prices remaining stable over the past year. However, high taxes and a migration trend to the Southeast make it less appealing.
St. Louis
St. Louis struggles with high crime rates and slow economic growth, making it difficult to find reliable tenants and sell properties. The average home value is $177,243, a 5.3% increase from last year, but these factors still deter investors.
Memphis
While Memphis has potential, its high poverty rate (21.4% in 2023) and low median household income ($43,981 in 2023) are concerns. Properties often sit on the market for months, and rental income can be unreliable. The average property price is $151,054, but prices have decreased by 2.7% since last year.
Washington, D.C.
Home prices in Washington, D.C., averaging $621,991, have remained stable over the past year. However, the city’s complex laws and political environment, making real estate investment challenging.
Cleveland
Cleveland’s average home value is $109,453, with an 8.5% increase over the past year. Despite the low entry cost, the city’s declining population and high vacancy rates, making it a risky investment.
Each city presents unique challenges that can impact real estate investment success. You should carefully consider these factors when deciding where to invest.