Dave:
Whenever I see one of those lists that claim they know the best cities to invest in, I get a little bit annoyed. I definitely click on the article first, read every single word of it, but then I get a little bit annoyed. They always have the same cities over and over again. And moreover, they never actually tell you how they arrived at the list of cities that they put on this list in the first place. But today, we’re pulling back the curtain on one of BiggerPockets latest lists of hotspots. Hey everyone, it’s Dave. Welcome to On the Market, the News and Economic Show for informed real estate investors today to go over our list, I’m joined by my friend and a market selection guru. I don’t want to use the guru, that’s like a bad word in real estate, a great market picker. Kathy Fettke, thanks for joining us, Kathy.

Kathy:
Oh, thanks for not calling me a guru, although I’m flattered you call me a goddess or something.

Dave:
Yes, a market selection goddess is exactly what I was going for. Kathy, how long have you been picking real estate markets for?

Kathy:
I would say I started around 2004 going outside my backyard and just kind of nerd it out on it. I just love it.

Dave:
All right, so you’ve been doing this for 20 years. We have the right person to join us, and we also have BiggerPockets own Austin Wolff joining us today who put together his list of 13 real estate hotspots that he thinks will have the most growth potential for 2025 and beyond. And just so you know, these aren’t all going to be markets that you’re used to hearing about. A couple of them might be similar to ones you have, but I promise you’ll hear some markets that you have not heard of or seen on some of these lists before. So let’s bring on Austin.

Austin:
Hey guys, happy to be here.

Dave:
Awesome. We’ll get to your research in just a second. But first I want to put Kathy on the spot. Kathy, have you ever been wrong about picking a market?

Kathy:
I really haven’t. I really have nailed it. Every time the mistakes I’ve made have been overlooking some markets, not investing in places like Austin or Las Vegas. And at the time, the cashflow wasn’t as good as other markets like Dallas where we invested quite heavily or Florida, and I’m happy today, 20 years later, it all worked out. But yeah, there’s some markets where I’m like, why didn’t I buy in Phoenix? The cashflow wouldn’t have been as good, but look at that appreciation.

Dave:
Yep, absolutely. This is why you’re the market picking goddess, Kathy, because you haven’t been wrong so far. I feel like I’ve been okay so far. There’s one syndication I did. It’s not a bad market, but I think I picked the wrong asset class for the wrong market on one. We’ll see. It’s still doing okay, but I have a bad feeling about it.

Kathy:
Oh wait, I take it back. I broke all my rules. Some of the rules are always invest in areas where there’s a lot of job diversification, employment diversification. Remember my little North Dakota issue?

Dave:
Oh, North Dakota

Kathy:
Very dependent on oil. As soon as we bought the land there, oil prices tanked and we’re still holding it. However, it’s looking good right now. Yeah, yeah.

Dave:
We’ll see what happens with oil prices too.

Kathy:
Yeah.

Dave:
Alright, well I think doing pretty well still, you can retain your goddess title. Oh, thank you for the rest of the episode at least. Okay. So Austin, let’s get into your list here. Tell me just a little bit, when you talk about a real estate hotspot, what does that even mean in the first place?

Austin:
Yeah, so to me, I define that as a real estate market where the economy is booming and is going to continue to boom. If we look at the correlation between income growth and home price appreciation over the majority of markets, we find that there is a strong relationship as incomes rise, so do the prices of homes, and one thing that contributes to incomes rising is a diverse economy that’s also growing as well. And so through that logic, I did an analysis last month where I just analyzed the markets with the fastest growing incomes in the area, but I didn’t think that painted the entire picture. So here I actually did want to paint the whole picture of the economy. So I looked at, I started with population growth, but then I also looked at job growth, wage growth, as well as GDP per capita, which can be thought of as a measure of productivity in a given market. So those are the key variables that I looked at to then whittle down and take a look at which markets are healthy and which markets are still growing strong.

Dave:
Those seem like great variables. Austin, I’m curious because on the show we talk about a lot of different data. Can you just explain a little bit about why you picked those? Because there are a lot of different ways that you can measure the economy and the labor market and job market. Why did you pick these ones specifically?

Austin:
Yes, these ones are most correlated with growth in prices. There are other things that you could look at, such as percent of people with STEM degrees, percent of people with bachelor’s or higher, as well as occupation diversity. So maybe you don’t want to pick a market where most people in there are just in the entertainment industry, or most people in there are just in the logistics industry. Maybe it’s better to have a more diverse economy. But the most important factors when we look at correlation between the variables and price growth, were a population job and wage increases. I did add GDP in there as well. It’s not as strongly correlated as those other three, but I thought it was a little more important to include than maybe percent of people with bachelor degrees.

Kathy:
This is so cool. This is Austin. Where have you been all my life?

Dave:
You can’t hire him, Kathy. He works for us.

Kathy:
Well, 20 years ago when I started, he might’ve been in kindergarten. I don’t know. I love, love, love, love that you are breaking it down to this level of detail where for me, it’s a lot of just gut check, right? But you’re validating so much of the gut check with this data. I’m thrilled. Thank you, BiggerPockets.

Dave:
Yeah, yeah, this is great, Austin. Thank you. And you could all, everyone by the way, we’ll put a link to this. We’re going to talk about this a bunch on the show, but Austin published this on the BiggerPockets blog, so we’ll put a link to that. Or you could just Google BiggerPockets 13 real estate hotspots. I’m sure it’ll come up there. Before we get into the exact markets though, Austin, I did have one more question for you. This is just something that happens with data analysis. Data is inherently backward looking, right? It is stuff that has already happened. So how do you take the data and things that have happened historically and then forecast looking forward, which markets you think the trends are going to continue or perhaps even maybe even better markets where you think that the growth might accelerate in the future.

Austin:
So when it comes to time series forecasting, you have to use past data to predict future results. There is no other way to do it. Then by looking at past data, they have a joke when I was studying data science that how does a data scientist drive a car? They’re looking in the rear view mirror because you have to look backwards to look forwards. But one thing that I did to not just take a look at, okay, what are the places that grew most in the past five years? I also took a look at places that grew the most in the past one year as well.
And I thought that was important because you could have these pandemic boom towns where they really grew in 2020 and 2021 and 2022, but what about the previous year? Did that growth slow down or did that growth continue? So it’s not a perfect prediction, but I think looking at the whole as a five-year average, and then also how much it grew in the past previous year is a good enough mix of both to hopefully take a look at those markets that are still continuing to see growth ones that didn’t just boom during the pandemic and now are stagnating.

Dave:
All right, great. That’s a great example. And yeah, just everyone, you should know this about all data, all lists that obviously past performance, not indicative of future results, but we do our best here to try and understand where trends are heading. And Austin has done a fantastic job doing this. Alright, we got to take our first break, but don’t go anywhere. We’ll get into the cities on Austin’s list. And which one surprised us the most right after this? Hey investors, I’m here with Austin Wolff and Kathy Fettke talking about the cities where the data tells us we should be investing. Let’s get back into it. Kathy, you’re looking at this stuff all the time. You see these lists that come out all the time. Were there any markets on Austin’s list that you were surprised by?

Kathy:
Yeah, the number one, the number one on the list was Phoenix, and that surprised me. I was kind of surprised by that one too.

Austin:
Me too. Really? Yeah. I was surprised as well.

Kathy:
Yeah, I mean, it is one of those markets, like I said earlier where I missed it. I always knew that Californians were moving there, but I kind of thought it was over 20 years ago and then five years later it can’t keep growing, but it just does and that’s amazing. So yeah, I mean good for all you. Who did invest there? I know some of my daughter’s friends, they’re Gen Zers who are investing in the area and they’re renting by the room making the numbers work because it is expensive, it’s expensive, but it’s still growing. And I think a lot of reshoring happening there. I know some of the chip manufacturing is moving into the area as well.

Dave:
Yeah, it just seems like it just keeps growing. And I mean if our friend James Danner has just moved there, I’m sure the profitability of all real estate investments are going to go up just because he is, because he’s there. Just because he’s one person, he’s going to bring up the average profit. So Austin, you said you were surprised. What was the data saying to you that made this number one on the list?

Austin:
The wage growth, the employment growth, the GDP per capita, the low unemployment rate, everything there is, it’s just shocking to me. I actually grew up in Phoenix. I was born there. I lived there for half my life. I still visit there many times a year because my dad lives there. And so I’ve personally seen it grow. But growing up there, I have my own biases about the city that I was like, okay, this is just a desert city with not a lot of water and it’s very hot. And in the summer times when I was a kid, summer break meant you stayed indoors all day, play video games, you can’t go outside or you’ll burn your hand on the swing set. So I didn’t personally enjoy growing up there, but man, the data proves me wrong. So many people love living there and so many people are continuing to move there Again, wages are increasing and just the employment numbers are mind boggling there. And Austin grew so much over the pandemic and I personally think that that ship has sailed. If you got into Austin during that time where before that time you made a lot of money, but I don’t think the growth has started to slow down for Phoenix. I think that Phoenix is continuing to grow even more than Austin just according to these numbers.

Kathy:
That’s very surprising.

Dave:
Yeah. I don’t know, Kathy, maybe you feel the same way. For me, Phoenix is just the cashflow. I think we’ve missed that part. To me, I think you’d have to be patient. You look at the rent to price ratio there, it’s 0.4. So you’re going to have to do some pretty heavy value add to probably find cashflow. Right now. I totally buy the idea that the city is growing, but it probably is better for my instinct is just that this would be better for people who are going to flip, who are going to rent by the room like Kathy you mentioned, or who are going to do maybe burrs or sort of a heavier value add kind of strategy.

Kathy:
Yeah, you’re going to have to get creative in that market, but I guess the Californians are still coming on over.

Dave:
Yeah, I am curious. I want to see who else is moving there. Have you ever seen those tools? They’re kind of cool where they show where people are moving from. I’d be interested to see from Phoenix, just anecdotally, Kathy, you live in California, you think a lot of Californians move there?

Kathy:
Absolutely. I mean if the starter home is over a million dollars, I think it’s 1.2 now at where I am. How are you going to do that? So it still looks somewhat affordable for a first time home buyer compared to here. And it’s a quick flight if you have to go into the office maybe three days a week, maybe you just live there and jump on a plane and you’re here in 45 minutes or it’s not far.

Dave:
Well, I pulled up actually one of those tools just while we were talking, and you’re right, the number one inbound city is Los Angeles. Absolutely right. There’s a lot of, interestingly state migration. So people from Flagstaff, from Tucson are moving to Phoenix. It looks like Vegas is another popular one. So it’s mostly regional, but you do see people from Chicago, New York, Columbus moving there as well.

Kathy:
And what confuses me is why Tucson hasn’t had the same trajectory because it’s a great little town, it’s beautiful, it’s nearby Phoenix, but it’s just, I don’t know. Austin, did you get any data on

Austin:
Tucson? I’ve always wondered the same. It just doesn’t grow as you’re right. The employment numbers aren’t growing as fast, but they have a great college there, relatively speaking. It’s a wonderful place. There’s a great music scene. It’s actually cooler than Phoenix because they don’t have as much concrete as Phoenix, so there’s less of a heat island effect. It seems like a nice place. I’m also shocked why companies aren’t also moving there. Maybe it’s because the network effect Phoenix is already so big, you already have so much access to talented workers that you might as well just start your business in Phoenix rather than Tucson.

Kathy:
It’s the same with the Silicon Valley. It’s like it is so expensive, why aren’t companies moving? They are, but it’s still the hub. If you really want to be somebody, you got to be there.

Dave:
That in itself, I don’t know much about. Tucson sort of flies in the face of one of my favorite investing philosophies, which is sort of the satellite city idea where when they’re super expensive cities or really big growing cities that secondary cities or tertiary cities that are right outside of them typically grow as well. And I actually wanted to call out two of them that I noticed here. One for me, I wasn’t surprised to see, but it brought up some painful memories. Like Kathy said, one I really missed was Colorado Springs, Colorado. I don’t know if you call it a satellite city, but it’s only about an hour, hour and 15 minutes from Denver. And when I was investing in Denver, I went down there actually for a totally not real estate reason and I wound up just going to some open houses and everything was so cheap in, even in 2013 or 2014, it was so cheap. And I honestly at that point just didn’t have the sophistication to set up a team that far away and I didn’t do it. And I’ve always regretted it. You could buy duplexes for nothing back then and it’s just absolutely exploded. And I will say the reason I’m surprised by it is I didn’t really think the economy would grow there as much as it is. But Austin, can you tell us a little bit about why Colorado Springs is on the list?

Austin:
Yeah, I think the economy is starting to diversify more than it has been over the past 10 years. We have the military there, there’s more professional services, tech jobs are being added into the area as well. And to your point, it is more affordable than Denver. And one reason why Denver didn’t make the list is it just didn’t have as much wage growth as Colorado Springs did. Colorado Springs has seen a healthy percentage of wage increases over the past five years as well. So I think that that contributed a lot to this area growing and also being added on this list. Again, I did weight wage growth pretty highly. So I think that the wage growth overall in the region is going to start to contribute to price appreciation there. So anyone that’s gotten into this market, I would say it’s not too late. I think personally, I think the ship has also sailed on Denver. If you got in the past 10 years, great. But this year and next year I’m not so sure. I think Colorado Springs might be a better bet for you.

Kathy:
I’m curious, Dave, you looked up migration to Phoenix. Are there a lot of Californians moving to Colorado Springs? Because anecdotally, I know a lot of people, some of our own employees, we have a remote company and they would buy the property where they want to retire years ago because it was so hard in California and then move there. So one of our employees did that. He bought the house probably 10 years ago but just moved there a couple of years ago.

Dave:
So there is not any big city that’s contributing to any one individual city that’s growing the most except Denver. This tool on apartment list says 40% of the people who are searching for apartments in Colorado Springs from out of town are from Denver, whereas LA is just 1.3%. So it’s not huge compared to New York is 1%, Chicago is 1.7%. So it’s kind of equal for all the big cities for Colorado Springs. And then you see a lot of other military towns there too, which is not surprising. The Air Force Academy is in Colorado Springs, big military presence there, which is great for investing. I mean it provides a very stable tenant base for sure. Alright, so Austin, to me these are both sort of good appreciation markets. Are there any markets that you think on this list are better for cashflow?

Austin:
Absolutely. I would say probably the majority of them, Cincinnati, Ohio, their job numbers are very impressive. Columbus, Ohio equally as impressive. Fayetteville, the northwest Arkansas area, the employment numbers very, very, very impressive.

Dave:
You just added one. You just added one job to the employment.

Austin:
That’s right. I am a taxpayer in this area.

Dave:
There you go. BiggerPockets added one job to Fayetteville. If you guys haven’t heard Austin’s story, he works for BiggerPockets obviously, but he just from LA to Fayetteville to house hack his first investment property. So I’m just joking around with him about that. But obviously he put his money where his mouth is with Fayetteville for sure.

Austin:
Yeah, yeah. And then Oklahoma City is another one. And then we have a metro in South Carolina called Columbia looking into it. It’s more of a college town, but they seem to start to have diversified their economy. And then Greenville, South Carolina as well, which has a lot of distribution and manufacturing jobs. So I would say that most of the metros on this list actually are quite affordable compared to all of the other metros in the United States at this curtain point in time that are also growing.

Dave:
Kathy, do you have any experience with any of those markets?

Kathy:
Well, I was happy to see San Antonio on the list because as you know, we have a syndication. We just launched a build to rent community. It’s on passive pockets now.

Dave:
Oh cool.

Kathy:
Yeah, and I’m happy to see it’s on the list because we believe it’s one of the fastest, well, the zip code that we’re in is in the top 10 fastest growing zip cones in the country. So it’s just great to have the confirmation that we have a genzer that did the data research to back up.

Dave:
Nice.

Kathy:
Yeah, Oklahoma City always. I’ve been a big fan of Oklahoma City. There hasn’t been as much appreciation there, but that could be changing. I know Oklahoma’s kind of in competition with Texas now, possibly going to remove the state income tax to be able to compete. So I think that’s a great kind of cash flow play where there could be appreciation. And then Cincinnati, oh my gosh, 15 years ago this woman came to me and said, Hey, I know you are always looking for good teams around the country. How about this little area between Cincinnati and Dayton, Ohio Butler County now it’s not just such a, people know it now. There has been very high appreciation over the last few years in this little Butler county that we took a big risk on. So you can still cashflow there, but I’m not going to say that it’s going to be a high appreciating market in the future. But one of the things that gives me comfort, and I know Dave, you and I have talked about this, I don’t think you put this on the list Austin, but climate change is going to be a huge factor. And that Ohio region has a lot of water, which makes me nervous about Phoenix. What if they run out of water? That’s an issue. Whereas Ohio has plenty of it. So I like it for that. The cashflow, the possible appreciation and the water.

Dave:
Yeah, there’s a lot to, in Cincinnati, I was looking at markets in the Midwest last year and I thought about it and wound up just not picking it for a couple of convenience reasons. But yeah, there’s a lot to like there. And I actually almost invested in San Antonio. I think I’ve told you this. Kathy actually flew down there and went around, but it was really hard for me being an out of state investor to figure it out. It’s so big.

Kathy:
It’s big. Yeah,

Dave:
I didn’t know it’s the eighth biggest city in the country.

Kathy:
It is huge. People just don’t know that. It kind of stays under the radar. It still has a small town feel. We just did our company retreat there and had an absolute blast. The river walk is gorgeous. It’s fun, it’s cool. Yeah, and the little pockets around town. We went rock climbing, we did laser tag and we had just a great time. Oh, nice. That’s awesome. A lot going on. And I’ve got a close friend who’s now in the military there. It’s again, another huge military base and that’s always good.

Dave:
Yeah, yeah, for sure. Silly me, I looked at San Antonio, I was like, oh, Austin’s getting overbuilt. I’m going to look for a satellite city of Austin. And I was like, wait, Austin’s a satellite city of San Antonio. San Antonio is way bigger, even massive though. Austin obviously gets a lot of news, a tech hub, but just population wise, man, San Antonio is absolutely massive. Alright, time for one last short break, but as always, if you want to leg up under your own market research, you can use the market finder and deal finder [email protected]. We’ll be right back.
Welcome back to the show. Let’s jump back in. Alright, so those are a couple of the spots on our list. I could read off a couple of others just so everyone knows. The top five are Phoenix. Number two is Tampa. No surprise there. Kathy’s been talking about that for years. Great. Market three is Raleigh, another one that’s kind of on a lot of lists. Then San Antonio and then Boise, Austin. Some of these are on common lists, some are definitely not. So what do you think differentiates your list from the ones that you probably see on, I don’t know, Yahoo Finance?

Austin:
Yeah. The most important thing is when it comes to lists on say, Yahoo Finance or other places, population is always sort of like the main variable that people use. And for good reason, you need people moving into a city for it to grow. But the other thing that I just made sure to look at was wage growth and then the GDP per capita, factoring those variables in did change the cities that got included into this list. But that being said, places like Phoenix and Raleigh and Tampa and Boise just grew so much and they still continue to grow that you’re probably going to continue to see them on these other lists as well. I don’t think the growth has stopped for these cities. They’re going to continue to grow for at least the next year, if not the next five.

Kathy:
Yeah, it’s interesting. With Tampa, we’ve had some major storms with major damage and that was terrifying. We were fine. We were fine because we focus on buying in, not buying in flood zones. If you stay out of the flood zones, our house is in St. Petersburg, it’s older. I’ve always said get a new property if you’re going to be near the coast in Florida, because they really are built to hurricane standards. But the one we have is old, really old, and the only thing that happened in that massive storm was the fence went down. So if that gives anybody any little bit of pause or comfort, as long as you get a little inland and stay out of flood zones, it’s still a great place to invest.

Dave:
All right. Well, I asked you both your surprise cities that were on here, Austin, are there cities that you thought that would make the list that when you did all the calculations surprise you that they didn’t make the list?

Austin:
I still really thought Austin would make the list, but it just didn’t have as much wage growth in the past one year. I think that’s fine. The wages there are pretty high already to begin with. It’s hard for these cities like Salt Lake City and Dallas and Nashville to continue to grow their wages. They’re not going to keep growing forever. I just think that those places, while I was surprised to not see them on this list, to me it’s maybe possibly an indication that again, the ship has sailed as far as 2025 goes. If you bought before this year, you probably did very well, but there are maybe better places to buy in the coming year than those places.

Kathy:
Yeah, I was super surprised to not see Dallas on there or Jacksonville because those cities come up on every list.

Dave:
Yeah. Yeah. Dallas, I was kind of surprised by Jacksonville is on pretty much every list. I’ve just never liked the fundamentals of Jacksonville for some reason. Personally, I was really surprised Atlanta wasn’t on there. I feel like everyone’s kind of over, I don’t know if it’s over. It’s a huge growing city, but it has gotten super expensive in Atlanta, relatively. And the one I really thought was going to be on there was Indianapolis. I just feel like everyone loves Indianapolis. I know Austin, you thought about buying that, right?

Austin:
Yeah, so Indianapolis was actually my first choice for the house hack. Fayetteville is number two. Indianapolis has such great fundamentals, it just didn’t beat Cincinnati and Columbus for the sort of the top spot when it comes to employment and wage growth. The wage growth hasn’t been as strong. The employment growth has been, there are so many jobs moving there relative to other Midwest places. So I still like the Indianapolis market. I think that’s good fundamentals. It just didn’t have as much wage growth as Cincinnati or Columbus.

Dave:
So why do you pick if Indianapolis was choice number one, why’d you pick

Austin:
Fayetteville? I actually found a deal so good here that I couldn’t say no.

Dave:
I love it.

Austin:
Yeah, so the fundamentals of the deal were great. New construction, cheaper than anywhere I could find in Fayetteville or Indianapolis. It was really good. It’s not too good to be true. It’s not easy to be in this deal. It’s a little challenging, but what does Warren Buffett say? It was a good property for a fair

Dave:
Price. Alright. And you get to hang out with Henry, which has to be worth something financially, is that you’re close to Henry. Alright, well I think that’s all we got today for you guys. If you want to see out the rest of the list again, we’ll put a link in the show notes or you could just Google 13 Real Estate Hotspots by Austin Wolff. Austin, thank you so much for putting together this list. Really appreciate not just doing the research but explaining it to people so they don’t just see a list and trust it blindly, but understand all the thought and care that you put into it as

Austin:
Well. Of course, happy to help.

Dave:
And Kathy, the market picking goddess, thank you for gracing us with your presence today. We appreciate it as always,

Kathy:
And I will end with a blessing to you both.

Dave:
Thank you Kathy, and thank you all so much for listening. We’ll see you next time for On The Market.