More and more Americans are migrating back to urban areas after a decades long trend of settling in the suburbs. According to Census Data, 2.3 million more people moved into one of the country’s 381 metropolitan areas in 2013 than during the previous year. As jobs and economic activity continue to grow faster in urban areas, metropolitan populations will continue to grow. Buying a rental property in an urban area may seem like the perfect investment, but let’s examine the pros and cons of owning a big city dwelling.
Urban rental markets are always active
Urban rental markets are notoriously tight markets, with a large population of renters and limited supply of units. In New York City a full 69% of the population are renters, and the vacancy rate rarely drops below 5%. NYC is a bit of an outlier even in urban markets, but all metropolitan areas are blessed with high rental populations and low vacancy rates. In Atlanta, 40% of people rent and the vacancy rate stays around 9%. In DC 59% of households rent and the vacancy rate is 6.3%.
Huge diversity in types of renters
Cities are the boiling point in the American melting pot. You’ll find every type of renter in a big city. Young professionals, established families with children, empty-nesters, retired people moving back to a town they left to have children, college students, low income families in search of affordable housing are all in search of housing in a city.
Many property types to choose from
Just as there is a huge diversity in types of renters, there is also a big variety in real estate to choose from. Whether you’d like to purchase a 20-unit apartment building, or are in the market for a small townhouse, there’s someone selling every type of property in an urban area.
You never have to sell a city
Big cities will never be at a loss for residents ready to call them home. Urban places are synonymous with good food, support for the arts, well funded public institutions, museums, storied neighborhoods, and public transit. An urban rental property doesn’t have to rely on special features or the newest appliances because tenants are more interested in everything going on outside.
You’ll pay more per square foot, a lot more
Property is more expensive in urban areas than in less dense, suburban and rural places. New York City has the highest per square foot price in the country, at $1068 per square foot. Compare that to Rochester, NY price of $90 per square foot. Similar divides are found in more reasonable markets. In Atlanta the average price per square foot is $132, compared to $88 per square foot in Athens, GA, a popular college town about an hour east of the Atlanta Metro area. In Dallas the average price per square foot is $135, compared to $69 per square foot in Mesquite, a Dallas suburb.
Older and historic buildings are expensive to maintain
Urban areas are full of older buildings and historic properties that may need extensive renovations to keep them up to code, or are protected by neighborhood preservation laws that dictate how and when a building can be modified. Older buildings cost more to maintain and often suffer from more frequent repairs. That being said, many renters are willing to pay a premium to live in a historic building, particularly if it is marketed as such.
Many city renters are transient
Urban centers are always in flux, and the people who live in cities move often. While a property in a city will never have trouble finding a tenant, it may go through many more tenants than a home in the suburbs.
Units are a lot smaller
Space is limited in urban areas, and units are smaller than in places with lower population density. While most city dwellers understand then small dwellings are to be expected, the size of the property you purchase will dictate the kind of tenant you’ll need to find.
Do your homework
It’s important to understand the local climate of any place before investing in real estate, but extensive research is absolutely necessary when considering purchasing property in an urban area due to the higher cost and other special circumstances.