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10 places where I would never buy a property

10 places where I would never buy a property
10 places where I would never buy a property

fizkes / Getty Images

fizkes / Getty Images

Historically, real estate investments have produced significant returns. The S&P 500 Index found that the average annual return for commercial real estate is about 9.6%, only about 0.7% less than residential real estate.

But any investment, including real estate, involves certain risks. Market timing, location, demand and the increase in value of the property over time – among other things – can affect your return.

Read more: Real estate market 2024: Real estate prices are falling in 10 formerly overpriced real estate markets

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Given the importance of location, GOBankingRates asked two real estate investors – Christian Gore and Itay Simchi – where they would never buy a property. Here are their answers:

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Chicago, Illinois

The average home value in Chicago is $296,901, up 4.4% from last year. Liquidity guarantees you solid returns on your real estate investments, but this city doesn’t offer that.

“The state is fiscally irresponsible and in a bad place,” said Christian Gore, founder and managing partner of G1 Capital Partners, a private equity firm specializing in multifamily and industrial real estate investments. “There are cases in Cook County where property taxes have increased virtually four to six times, making the market an illiquid market.”

Detroit, Michigan

“In my experience, there are several areas in the United States where I would never buy a property,” said Itay Simchi, real estate investor and founder of Proven House Buyers. One of those cities is Detroit, Michigan.

“With a staggering 35% vacancy rate, Detroit’s real estate market is still recovering from the decline of the auto industry,” said Simchi. “I’ve seen firsthand how difficult it is to find reliable tenants and sell properties in this area.”

Detroit home prices average $73,843, up less than 2% from a year ago.

San Francisco, California

Real estate prices in San Francisco are almost exorbitantly high, with the average home value being $1,296,843, but this represents a decrease of 1.6% over the past 12 months.

However, it is not just the property prices that make the city less attractive to investors. According to Gore, he would not buy property there because he finds the environment unsafe and unpleasant for people to live and work in. This, combined with the high cost of living overall, makes the city a poor investment opportunity.

Baltimore, Maryland

“Baltimore’s high crime rate (55.4 violent crimes per 10,000 residents in 2022, FBI data) and declining population (a 1.2% decline between 2020 and 2022) make it a risky investment for me,” Simchi said. “I’ve had problems with property damage and low rental income in the past.”

The area may be a slightly better residential investment, but that’s all subjective. Currently, the average home in Baltimore is valued at $187,223, less than half the national average. That’s up 5.3% from last year, but a possible sign that the real estate market is on the upswing.

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New Orleans, Louisiana

New Orleans is another potentially risky investment, Simchi said. Crime rates, especially violent crime, are still high in the area. In addition, the city is struggling with overall economic growth.

In New Orleans, the median home value is $247,524. While that may seem attractive at first, it’s also a 6.4% decline from last year. And when you add in high home insurance premiums, it could be a potentially expensive investment.

“I saw properties damaged by natural disasters and struggled to find good tenants,” Simchi said.

New York City, New York

Investing in New York City real estate is not for the faint of heart, nor is it for inexperienced investors – unless they know what they’re doing and have plenty of capital. On average, homes in the city cost $748,012 and have remained relatively stable over the past year. No dips could be a good thing, but no increases could also mean negligible returns.

“The tax burden in New York has increased significantly,” said Gore. This has made it “very difficult to invest sensibly here.”

Gore also added that many people have actually migrated from New York to the Southeast, which does not bode well for those looking to make their fortunes investing in real estate in New York.

St. Louis, Missouri

St. Louis is another area that Simchi says has struggled with high crime rates and slow economic growth. This has made it difficult for him to find good tenants for rental properties and has also made it more difficult to sell properties quickly.

Of course, everyone’s experience is different. Currently, the average home value in the city is $177,243, up 5.3% since last year.

Memphis, Tennessee

“While Memphis has potential, it is a hard sell for me due to its high poverty rate (24.6% in 2022, U.S. Census) and low median household income ($44,445 in 2022, U.S. Census),” Simchi said. “I’ve seen properties sit on the market for months and rental income is often unreliable.”

Real estate in Memphis costs about $151,054 on average, so it could be a good place for newer investors looking to start with small amounts. At the same time, Zillow found that home prices have fallen 2.7% since last year – a potential problem for those looking for higher returns.

Washington, DC

Real estate prices in Washington, DC, have remained stable over the past year, with the median home value at $621,991. While that might encourage some investors to buy property, Gore sees it differently.

“The city has many laws and regulations that make investment here difficult and are motivated more by politics than by principle,” he said.

Cleveland, Ohio

The average home value in Cleveland is just $109,453, according to Zillow data. While that’s well below the national average, home prices have increased 8.5% in the past year. This could make the city attractive to newer investors – especially if they don’t have quite as much capital to invest.

But that doesn’t mean it’s a good place to invest. For Simchi, the declining population and high vacancy rate are big warning signs that prevent him from buying property there.

*All average property values ​​are according to Zillow.

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This article originally appeared on GOBankingRates.com: I’m a Real Estate Investor: 10 Places I Would Never Buy Real Estate