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Buying in the City vs. Buying in the Burbs

Dec 02, 2020 by Liz Brumer
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What is a city, technically?

A city is defined as any town that has more than 100,000 residents, and a metropolitan area is any place that has over 1,000,000 residents. Many times, the term city is used when discussing a true city or metropolitan area but is essentially referring to urban areas that are densely populated with distinct boundaries governed by a central body. Because of the dense human population, they have extensive housing, business, social, transportation, and sanitation networks. Historically, more people lived outside the city than inside, but in the past couple centuries that has shifted, and now half the world's population lives in urban city environments.

Why does investing in the cities make sense?

Cities have long drawn residents to a melting pot of cultures that is hard to achieve in smaller towns. Cities and metropolitan areas often have an abundance of jobs as well as access to luxuries and amenities such as restaurants, shops, schools, healthcare, entertainment, and more. But living in the city comes with high population density, considerably higher living expenses, and significant transportation issues.

The opportunity

The distinct shift in housing trends we've seen this past year have been possible because of the new norm surrounding COVID-19. With many industries crippled, social distancing measures being strictly enforced, and businesses rethinking how they function, it has made telework not only feasible for many but practically essential.

Since the pandemic, most of the people and businesses who were able did shift to a work-from- home scenario. This allowed people to start looking outside the cities for housing while still maintaining their high-paying jobs. But jobs are not the only draw for city living. Top-notch healthcare (critical during situations like COVID 19), quality education both for lower and higher education, and open-minded multiculturalism will continue to be enticing enough for many to forgo the larger houses and quieter lifestyle.

Decreased demand currently means lowered real estate values. Investors who have the patience to ride out the current wave can pick up metropolitan or city real estate for discounted values. In the long run, the fundamentals of valuing urban real estate higher than suburban or rural property will remain regardless of this temporary distraction.

As with any investment, you still need to do your due diligence, but now you'll get to do so with a fraction of the competition, allowing more negotiation room and a higher likelihood of finding undervalued properties to later capitalize on. For those who aren’t quite convinced, take a look at how investing in the suburbs has its own particular benefits.

What are suburbs?

The suburbs are primarily residential areas located on the outskirts of an urban city. Suburbs usually have lower population density, larger homes with larger lots than the city, and lower home prices for equivalent space than you would find in the city. In the past, living in the suburbs often meant long commutes into the city to work in exchange for a quieter and more comfortable home life. With many working from home now, living in the suburbs no longer means a daily required commute.

Overall the real estate market is booming. National inventory is down 39%, days on market is 12 days less, and list price is up 11% since last year. When comparing the major urban cities to the suburbs, we find even higher demand. The inventory is declining faster in the suburbs, with a staggering 41% decrease in new homes listed compared to the same time last year, whereas the cities have only seen a decrease of 34%. Pair this with the rapidly narrowing price gap, which historically has seen higher prices in the cities than the burbs, and you have a clear increase in demand.

Why does investing in the suburbs make sense?

The suburbs have long been designed to help residents get the best of both worlds and serve as the meeting point of urban and rural living. The city offers abundant high-paying jobs and access to luxuries typically only found there, which can include a diversity of restaurants and shops, good schools, healthcare, access to shows, museums, and more, but it comes with a high population density, considerably higher living expenses, and significant transportation issues.

On the opposite extreme end there is rural living, offering plenty of peace and quiet, large comfortable homes with land, and a low cost of living, but more often than not comes with very few jobs, limited access to social scenes, and minimal options for necessities like grocery stores, childcare, and healthcare. The suburbs are the ideal blend of the two, providing access to amenities of the city, allowing residents to maintain a social network, and offering comfortably sized homes near the city and amenities.

The opportunity

As stated above, COVID-19 has made working from home a near necessity for many in the workforce. Most of the people and businesses who were able to shift to a work-from- home scenario did just that. It's still early to tell for sure whether it will last, but this widespread and lengthy adoption has made it not only socially acceptable but eye opening for business owners. The expensive office space, support staff, and all of the associated costs can potentially be greatly reduced if not eliminated while maintaining the productivity of staff for a fraction of the cost.

This complete shift in lifestyle, mindset, and the ability to work remotely has given many folks the opportunity to think about what matters most and how they can create the most comfortable living situation possible. Regardless of whether COVID is here to stay or is something that will soon be better controlled, there has been a lightbulb moment for business owners and employees that will likely create a lasting change.

Working from home in modern society is completely achievable and allows people the luxury to live where they want, which means bigger houses and more space living in the suburbs is a trend that in all likelihood is here to stay. Shifting your investing focus to capitalize on this shift just makes sense. With a little bit of due diligence, as with any investment, you could begin to generate strong cash flow from investing in the suburb real estate market.

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