Here are the top ten cities to invest in according to Compound a New York-based real estate technology company which creates city-specific investment funds. Compound recently released its Q1 2019 list of the top and bottom U.S. Cites looking at the forty largest metros based on population for real estate investment.
“The reason behind us doing this was not to simply say these are better or worse places to invest. We are presenting a different way of looking at risks and rewards. Traditionally when people look at places to invest in or not to, they don’t always take in the associated risk factor,” explained Chief Investment Officer of Compound Jesse Stein.
“Our data looks at long stretches of appreciation in high flying markets that have risen beyond peak pricing. The data shows the inflection point in some markets has slowed with increased volatility and more associated risk,” Stein adds. To measure returns Compound used the Zillow Home Value Index which includes single family homes, condos and co-ops comparing home values in March 2019 to March 2018.
Compound measures risk here by calculating The Sharpe Ratio of each these 40 MSA’s average home price, “using monthly changes for the same period as the return calculation, which in this case was monthly for twelve months from March 2018 to March 2019.” Nobel Laureate William Sharpe developed The Sharpe ratio to help investors understand the return of an investment compared to risk.
Look at the top ten cities to invest in and Indianapolis has the top spot. San Jose finished last in the ten worst cities rankings. After Indianapolis, there is Cincinnati, Kansas City, Charlotte, Dallas-Fort Worth, Columbus, Atlanta, San Antonio, Austin, and Cleveland. “I was surprised that three Ohio cities were on that list. But the data is there to support that,” said Stein.
Compound’s worst ten cities are no surprise given the market dynamics. They include San Jose, San Diego, San Francisco, Los Angeles, Seattle, Washington DC, Baltimore, Virginia Beach, Portland, and Chicago.
Stein has some words of advice. “The takeaway for a Forbes investor is do not only look at appreciation numbers. Look at both stability and volatility over the last ten years in a metro area. Take into account what are the associated risks from a data perspective as you would with a stock.”