The real estate markets that have the highest populations tend to have the highest housing prices. Think of cities like New York, Los Angeles, San Francisco, and Seattle. Just a few years ago, these bustling metros were packed to the brim with tech workers, all of which contributed to housing shortages and sky-high home prices. Now, with remote work the new norm, these big cities are seeing their populations slowly start to siphon out to more affordable housing markets in America.
As an investor, you may ask yourself, “where are the most people (and money) headed?” In this episode, Dave Meyer and David Greene will answer this exact question. But, it isn’t 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 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 could be a short-term loss that leads to your long-term gain.
But even if you know where Americans are migrating, you’ll still need to know the “why” so you can find future markets fitting these criteria. Dave and David touch on how work from home changed the housing market, why the pandemic split the nation into affordable and unaffordable housing markets, and how something as simple as a warm day could heavily impact where the best investing opportunity is. So stick around if you’re planning on buying, investing, selling, or moving in 2023!
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This is the BiggerPockets Podcast show 729. When we talk about why, I think it’s a combination of factors, but most of them are related to technology. So if you think about the ’50s, what made someone determine where they’re going to move? It’s probably where dad’s 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’ve gotten to the point where now people are specializing, and they work from home all the time.
What’s 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’s 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’s show about where you should be investing in 2023.
Before we move on with that, today’s 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, “That’s 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.” Consider checking out the BiggerPockets’ 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’re like me, and you’re addicted to YouTube, and you listen to it all the time, go follow and subscribe to the BiggerPockets’ 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’s show?
I think today’s shows is one of my favorite ones we’ve done in a while, because this is one of those areas where investors can really gain an edge over their competition. This is like… If you’re the kind of person who likes to research and understand what’s 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’re going to talk about where people are moving, why people are moving, where businesses are moving, and why they’re moving.
If you can follow these trends, and extrapolate them out to what might happen over the next couple of years, you’re going to be in a really good position to identify great locations and great markets to invest in real estate.
Yes, and on today’s show, we name names. We’re 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’re wrong, you look like a fool, and nobody likes that, but that’s 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’s get into today’s show.
What’s going on? Dave Meyer, I’m so happy you’re 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’s happening in, or a cold city that people are leaving. I think this stuff is really important. So glad you’re 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?
Well, sure. It’s 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’t seen. A lot of the trends that we were used to are now the opposite, and we’re 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’m pretty excited to talk about this, because there’s a lot of cool information that we’ve gathered for you.
We have several headwinds that have all joined together to create this huge rush that’s 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’re going to talk about. Then we have the fact interest rates were incredibly low, so you really couldn’t 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’t get the right location, you still did well because assets in general, the prices of them-
You got lucky.
That’s exactly right. But now that you see it starting to turn around, we’re starting to head into a bit of a recession. The people who bought in the areas that appreciated the most, they’ve got the most cushion, so they’re going to be hurt the least when things turn around. That’s why we’re talking about this, because we always want to try to be ahead of what’s going to be happening next. Let’s start off, and just have you get into the great reshuffling as we’ve called it. Tell me what’s going on in the way that real estate investing has changed.
I think basically, you’ve 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, “We’re actually going to make this permanent,” 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’d 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, “I can still make a San Francisco salary, or I can still make a New York salary and move somewhere else.” What we’ve seen just in terms of data, what’s 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’s up significantly from pre-pandemic levels, and it’s still…
We’re no longer in lockdown mode anymore, and we’re 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?
I think that’s a great place for us to jump off here. Let’s get a bit of a foundation and understanding what led to the change, and then let’s talk about what we think is going to happen. Then before we do, I just want to highlight why we’re talking about this, why it’s important. In the past, it’s been enough with real estate to just teach someone how to analyze a property. What’s 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’re good. You got a property, and that’s 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’s why we’re bringing this information. That’s why we’re not just only bringing in the story of the gym teacher that bought four duplexes, and now they’re done, and they don’t have to work. It’s getting harder and harder to do that, but at the same time, it’s getting more and more important that you are investing in real estate.
That’s why so many people are flooding into the space, because they’re recognizing the safety, the long-term benefits, and the fact that when you compare it to other investment options, they don’t 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.
That’s a very good point. I mean, there is also a good point about what you said earlier that even during the pandemic, it didn’t matter where you invested because everything was going up so much, but we’re 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’s being invested, you’ll 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’re talking about this, and why this is important. We know that people are moving a lot, and they’re continuing to move more than they used to. So before we jump into where they’re going and what this all means, maybe we should hit a little bit on why people are moving from where they currently live.
That’s a great point, because if you can understand the why, you’re more likely to predict what will happen in the future. First thing I’ll 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’s more important to know it than they ever did before. I don’t 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’re 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’s a combination of factors, but most of them are related to technology. So if you think about the ’50s, what made someone determine where they’re going to move is probably where dad’s going to work, right? Back then, you got dad’s going to work. Mom’s staying at home, raising the kid. We have very traditional gender roles that people are operating through, and you can’t… There’s no Zoom calls. There’s no internet. You are driving into a physical location to attend meetings in person. I’m sure some stuff was done over the phone, but I don’t 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, “I got to go to where I get my food, which now is our work.” Well, internet has increased its capability rapidly in the last 10, 15 years, and we’ve 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’t break out of the pattern. Then COVID-19 hit, and that was a pattern disruptor. You absolutely had to change the way you’re 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’re 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’re in sales and marketing, you probably don’t have to be in that company. You’re 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’m at in San Francisco, it was terrible. I don’t 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’s becoming a bigger spread in the spectrum politics every year.
So certain people said, “I don’t want to live in a state that’s this way, or I don’t want to live in a state that’s that way,” 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’t want to commit to a two-month lease for someone. It was a 12-month lease.
So if you didn’t 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’ve got expensive options if you want to move your whole family into a big house. You’ve got cheap options if you just want to live in someone’s 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, “I want to make a bunch of money and quit and retire so I can travel,” is now something that you can do while you’re still working.
You don’t have to wait until you’re 50, 60, 70 years old to retire and travel. You can do it at the same time. You’re doing your work right now from Amsterdam. Are you in Amsterdam today?
So, you’re 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’s going to be rising demand.
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’re just picking on those two. You’re 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’s not a coincidence that San Francisco and New York are two of the most expensive real estate markets in the world. It’s because people want to live there, because they want to have access to those very expensive jobs.
Now, you’re saying, “Oh, I can get that San Francisco or New York salary, but I don’t 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.” It’s 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’re Facebook or Twitter or Google or whatever, if you say you can take your San Francisco salary, and move to wherever you want, you’re 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’t necessarily think they’re 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’s pretty stable. It peaked a couple years ago. It has come down a little bit, but now it’s pretty flat. So, I think we are going to continue to see people able to work remote. To your point, David, I think that’s going to just increase this transience among people going forward.
Well, I think in some of the places that we’ve 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’t. They had to wait till they were done. You think Florida’s exploded. That is our typical retirement community of America. Everybody waits to retire the move to Florida. You’ve got Arizona. Arizona has exploded in demand as Californians have realized it’s a little bit hotter, but it’s not a whole lot of different climate than what we’re used to, but it’s a third as expensive as the Bay Area.
Like you said, it’s a huge… it’s 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’m sure the Texans don’t love this that are listening to this, but everyone else wants to go there. Tennessee was another place that a lot… 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… They wanted to be there the whole time, but their job was restricting them. As we’ve cut the tethers of your workplace requiring you to be someone, we see people naturally going to where they wanted to go. That’s one of the reasons that I invest in those markets. I don’t see that changing in the future.
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’ve noticed are, one, income tax. States with no or low income tax have been major winners like Nevada, Texas, Florida.
Tennessee. Exactly. There you go. Then a lot of times… 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’re 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.
It’s funny. Three years ago, I was doing real estate meetups in the East Bay Area, and people would say, “You wrote long distance real estate investing. Where should I buy it?” I was like, “Everyone overthinks it. We overthink it so much.” 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’re paying the highest in taxes, and people in New York don’t like the cold. They would rather live in the warm, and people in California can’t live in the cold. We can only live in the warm because we’ve been spoiled.
You’re not adapted to the cold.
Yes. It’s like 50 degrees over here, and everyone’s complaining like, “This is ridiculous. We’re going to die. My petunias can’t make it in this 50-degree weather.” We don’t adapt at all. I said, “You should invest in Texas, Tennessee, and Florida. That’s it.” Find the areas that someone would move to to start, and those places have exploded, and everybody has made money that’s invested there. It really can be simple when you understand the principles that we’re about to get into now.
Hopefully those people listen to you.
All right, so Dave, the numbers guy, the data guy I should say, tell me, what is Redfin statistics on this trend? What’s the data telling us?
Well, we’ve 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… No, excuse me. They’ve lost 343,000, but they gained another 150,000. Like we’ve 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’re very, very expensive, and we’re going to talk about that in just a moment.
A lot of this, I believe, is not just personal lifestyle, but you’ve seen a lot of companies move out of San Francisco and LA. You’ve seen a lot of finance companies, for example, leave New York, and head to Florida. Those aren’t 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’re heading, no surprise, some of the states that we’ve 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’m guessing you are not surprised by anything I just said.
No, I think… Man, it’s 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?
400,000, that’s a lot of people moving into an area that doesn’t have enough supply of homes. It’s typically only retirees that are moving into Florida, or immigrants that are on that part of the world. So, you’re seeing a massive amount of houses that are being built. Florida’s trying to adapt to this. There’s subdivisions going up everywhere. Prices are increasing super fast. The Floridians, they think they’re in a bubble. They’re over there like, “That house used to cost 300,000. Now, it’s costing 440,000. This is ridiculous,” but the New Yorkers are like, “I was paying 1.2 million, and I could go live there for 440,000, and it’s warm. Sign me up.”
I mean, my friends who still live in New York would pay 1.5 million for a one-bedroom apartment. It’s nothing to them. They still see that this is a good deal, but I do think it is just… I will say this is a tangent, but Florida is one of those states where it’s really depends what city you’re in. Some markets are just humming along, which we’ll 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… It’s hard to find data for this. I was surprised at how difficult it was, but I’ve seen some evidence, and I think we just know this anecdotally, that there’s a lot of businesses moving their headquarters. I could only find data that was reliable, that goes back to 2009. So, it’s not really all pandemic related, but just over the last decade, we’ve 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’re gaining businesses which doesn’t 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’t 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’s 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… You want to move from New York to Miami or wherever to wherever. Now is pretty good time to negotiate a good office. There’s 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’t 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?
I think this makes perfect sense with what we’re just describing. If we’re talking about people needing to be in a specific location to work less, but then wanting to travel more, you’d expect office space to decrease within areas, because people don’t have to go to an office to work. They’re working from where they live, and you’d expect demand to increase in the residential space. That’s exactly what we’ve seen. Specifically within the short-term rental markets, you’ve seen increasing demand, which has been so much that even as supply has flooded the market, we all know someone out there who’s like, “Oh yeah, we just threw our house up on Airbnb, or we put a trailer in the backyard.”
Everyone’s doing this, which is funny because it’s not a thing that you would think could be supported if everyone threw their properties up. It’s not meant to be something everyone can just do. You have to match supply with demand. Yet, there’s been so much demand that so many people have put stuff up there, and they’ve done well, and then, like you said, commercial space, office space, it’s becoming very easy to lease and very difficult to manage. I bought into some office space, and vacancies have been up. It’s been harder and harder to figure that out.
You and I have brought guests on to talk about what we’re 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’s your thoughts on why that might be happening, some of those states?
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’s cheaper for office space.
Then the second thing I wanted to say is that there is… 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… You know the city, Kansas City, obviously. It’s 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, “Wait, you won’t pay taxes for 10 years.” Then Missouri will be like, “You won’t pay taxes for 12 years,” and so they’re 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’s like… If you run a business, and it’s going to cost you 20% less whatever in taxes to move to Nebraska, maybe you do it because your employees wouldn’t even care, because they’re remote anyway. That’s just my personal opinion. That’s not really backed up by any data, but I was thinking about it, and that’s where I came out. What about you?
You’re exactly right. We saw that play out with Tesla. With Elon Musk in the Bay Area, they have a Fremont plant, and there’s all these regulations that are put on them. Taxes are very high. That’s 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’t want to leave.
I mean, this is… California is expensive, but it’s expensive for a reason. We’ve got mountains. We’ve got beaches. We’ve got deserts. We’ve got incredible urban infrastructure, restaurants, all kinds of really cool things in diversity that once you see this, you’re like, “Oh, I wouldn’t want to live anywhere else,” but we also have high taxes. We also have a lot of regulation. There’s negatives that come along with that. He was basically saying, “I’m going to move to Texas, or I’m going to move to Nevada. I’m going to move somewhere that I wanted.”
Those states that said, “Come here. We want you,” where California’s making it look like, “We don’t want you. We want your money. We want your taxes, but we don’t want to support your business.” That absolutely happened, and as I was just saying, when people or businesses see someone else does it, they’re more likely to follow suit. You see a lot of businesses leaving California, and moving into Texas. It’s like you mentioned. It’s 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’s a zero state income tax, they can pay them the same amount, but claim that they gave a 13.5% raise. It’s absolutely true.
The employees feel that. They actually feel it.
It is easier to save money than it is to make money. That’s 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’re not having to pay taxes on what was saved. So, I think it’s 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?
That’s the talent pool. Those are the types of businesses that are saying, “We need this kind of brain, and these people aren’t leaving California, so we are willing to go there and pay more money to get them.” But if you’re a different business, maybe you’re an international business that’s not dependent on the California amenities like the talent pool, you’re absolutely going to go to Tennessee, and you’re going to save some money. It’s not as simple as just understanding, “Are they coming in, or are they coming out?” That’s 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’s one of the reasons that real estate in that area is so dang expensive, because the wages are incredibly high.
They’ll make so much money.
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… Birmingham Alabama’s even had some of the tech company move out there. Madison, Wisconsin has seen a lot of that. South Florida has seen… Those are not coincidentally the areas that we’ve 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’re a tire manufacturing plant, you don’t need to be in San Jose, California. You can absolutely go to Nevada, and save a lot of money. But if you’re working on the next microchip, and you’ve got 700 moving pieces that all have to come together to make that happen, you probably have to be where the people are.
Absolutely. It makes sense. I think that one of the… We’ll 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… That bodes very well for real estate investing. It’s 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’re going to be hiring engineers. They’re going to be bringing in construction workers. They’re 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’s why we’re talking about this is that it’s not just interesting to see, but it does have actual implications for these local economies.
100%. Now, let’s talk a little bit about the south, because on this podcast, we’ve been talking about this for a long time. I’ve 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’s where everybody tends to be moving into, and it’s been this way for a long time. My partner, Andrew Cushman and I buy multi-family property. We’re only buying for the most part in the south. We’ve done very, very well in these, because we’ve seen so many more people moving there, and the demand has increased faster than supply. It can’t 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’s some of the data and the numbers on where people are moving in the south?
So if you look at businesses, it’s 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’s Florida, Texas, and Arizona. That’s 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’s 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’s just talk about specific cities. Dallas is really one of them. Atlanta, which we haven’t 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’t know what you call Arizona if that’s technically the south, but the whole Sun Belt area seems to be just absolutely exploding, and those markets are at the top.
That’s 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’s one thing I want to point out, where when people are just headline readers, and they don’t ask the why, it’s very easy to see markets like Phoenix or even Tampa that’s been listed in their Las Vegas as they’re dropping in prices. It would appear from the outside like, “Oh, that’s a declining market. You want to get out of it. You don’t want to buy there.”
They’re dropping because they rose so freaking fast. It was almost impossible. They were skyrocketing, and they finally tailored off, and they’re 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’t mean jump in and pay list price right now. We’re not saying that. You probably don’t have to get into a bidding war if you’re 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’ 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, “This is where people are moving. This is where business are moving.” 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’t even possible.
Totally. I think similar to you, people ask me a lot like, “Where should I invest?” Over the next few years, I think that there’s 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’s like… 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’s like people are going to want to move there. Businesses are moving there.
Austin’s the poster child for everything we were just talking about. Same with Tampa. Cities like that are going to keep doing well. Tampa’s actually doing okay right now, but I think there is a really important difference between what’s going to happen in the next, let’s say, 12 to 24 months, and what’s 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’m 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.
Let’s 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, “Where is the cheapest real estate, or where is the highest price to rent ratio right now without thinking about the future,” because real estate’s great over the long term, but one of the downsides of it is you own it for a long time. It’s been traditionally easy to sell, but that doesn’t mean it will stay that way. If you buy in a market that people are leaving, you can’t think, “I’m just going to sell if it doesn’t perform well,” because there’s no one to buy it.
It’s hard to get rid of it. That’s a thing we need to be thinking about more in the future is we’ve just assumed buy as much real estate as you could possibly own. We haven’t even had to worry about where. If you’re 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’re able to get are worse and worse, and you’re not wanting to own. Don’t think, “I’ll just sell it,” because no one’s going to buy it. It doesn’t 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’s trying to make the next super, duper microchip. Then look at how this will impact the overall makeup of a market’s economy. Are businesses moving in that bring other businesses with them? If you look at commercial real estate, you see the same pattern. They’ll take an anchor tenant like a Target. They’ll put this in a shopping center, and then you’ll have all these little additional tenants that will jump on like the place you get your haircut.
Do you notice there’s always the ice cream shop next to a haircut place?
There’s always a Chick-fil-A. They follow them around. It’s an actual thing. We talked about this on the market show the other day. It’s like the Chick-fil-A follows around Lowes. They do it on purpose.
They’re smart to do that. I noticed there’s always a [inaudible 00:41:13] around. There’s ice cream next to the haircut place, because every parent wants to get their seven-year-old to sit still, and they say, “If you do, I’ll take you to go buy ice cream”. They know a certain demographic of people shops at Target, and if you put stuff next to Target that’s convenient for people that are shopping there, they’re 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’s going to want to follow that, and then think about what type of real estate they’re 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’t just blindly follow where you see other investors going. Dave, anything you want to add about that?
No, just that similar to how I was saying that you shouldn’t look at a state, and be like, “Everything is one way in that state.” 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’m sure when you, David, talk about “the Bay Area,” there are so many different submarkets within the Bay Area that are performing really differently.
So, don’t 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’re going to make decisions.
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’t know the Bay Area. You don’t know Birmingham. You’re going to go look for the cheapest real estate you can find, because that’s the safest. At least that’s what you’re thinking, that you need to talk to an agent.
Not the safest.
No, it’s almost always the opposite, right? I have people that say, “Hey, I’ve been looking to invest in the Bay Area, but it’s really, really expensive. So, what do you think about Stockton, California?” That’s 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’re 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, “Hey, I need an agent in that area that you know.”
Ask them what type of people live in this city? What are they doing for work? What’s 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… It’s high walk scores, so they don’t even need to have a car. They’re 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’re going to be making on this house payment.
Absolutely. I think that’s great advice.
All right. Well, Dave, if people want to hear more about your studies, your data collection, where can they do that?
Well, I host a podcast twice a week called On The Market. It’s 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’m @thedatadeli.
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’s my go-to person every time I’m not sure, “Do I want this Buffalo Chicken Ranch, or should I stick with a turkey and avocado?” Dave is a whizz. In the same way that people come to me on Seeing Greene, and they say, “I’m stuck. I don’t know what to do,” I can go to Dave every single time if I’m not sure if I want to get the aioli or just a straight mayonnaise. He knows the questions to ask. He’s the guy to of to.
Oh my God. What a topic. We could talk… This could be a whole episode.
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’t know, BiggerPockets has more resources than just this podcast. There’s 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’t 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’s work on data and reports that he’s put together. All right, I’m going to let you get out of here, Dave. Do you have any last words before we go?
No, thanks for having me. This was a lot of fun.
This is David Greene for Dave, the sandwich guru, Meyer signing off.
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In This Episode We Cover:
- The ten real estate markets that are seeing massive migration even in 2023
- The “great reshuffling” and how a nomadic work culture changed America’s housing landscape
- Work from home’s effect on migration, high-paying jobs, and home prices
- How political stances and low/no income tax enticed many Americans to leave their home states
- The housing markets seeing the BIGGEST population drops and where not to invest
- Where businesses are moving, and the sneaky tax incentives states use to entice corporations
- Why short-term price drops DO NOT predict the future of the housing market
- And So Much More!
Links from the Show
Books Mentioned in the Show
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.