The pandemic has shifted the pecking order of the real estate industry’s location-location-location axiom for many homebuyers — high-cost and high-density urban is out, while suburban is back in vogue and rural is experiencing a bit of a revival.
Many real estate investors were serendipitously ahead of this shift even before the pandemic started, driven by both affordability and an affinity for overlooked markets.
“Currently I’m in some of the Southern markets like Alabama, Mississippi, Texas, Indianapolis, Ohio. Those markets I’m able to put a little bit less money in but also make a comfortable amount of return,” said Bijan Green, a Denver-based real estate investor. “A deal for me is a property I can buy for under $100,000, typically.”
Green gave the example of a Fort Wayne, Indiana, property he purchased on Auction.com via a bank-owned (REO) auction in July 2019. Following extensive renovations that took nearly a year to complete, the property was resold to an owner-occupant buyer in July 2020.
Located 125 miles northeast of Indianapolis and about 170 miles southeast of Chicago, Fort Wayne is in Allen County — a top 50 market for out-of-state buyers like Green, according to data from the Auction.com marketplace.
The data shows 30% of all properties purchased via online REO auction in Allen County were to out-of-state buyers, ranking 36th highest among 198 U.S. counties with at least 10 online REO auction sales through the first 10 months of 2020. The 30% of purchases going to out-of-state buyers in Allen County so far in 2020 is up from 21% in 2019 and 11% in 2018.
Allen County fits a similar profile to the top five counties with the highest percentage of out-of-state buyers so far in 2020: counties outside of major metropolitan areas with populations between 60,000 and 200,000. Three of the four counties are home to an army base or other army facility.
Those top five counties were Comanche County/Lawton, Okla. (75% out-of-state buyers); Calhoun County, Ala. (60%); Richmond County/Augusta, Ga. (56%); Salem County, N.J. (56%); and Rock Island County/Quad Cities, Ill. (54%). See sidebar for more details on these markets.
Investing Where the Heart Is
Out-of-state buyers often have a personal connection or special affinity for the markets where they are purchasing, even if those markets are literally across the country. San Francisco-based real estate investor Will Wenzel started purchasing distressed properties in his hometown county of Fairfield County, Conn. — 2,959 miles away from San Francisco — when he had a “Eureka Moment” shortly after the declaration of the pandemic in March.
“We wanted to see the area do well. We wanted to invest capital back into the area in which we grew up,” said Wenzel, who is partnering in the venture with a long-time friend who is a designer and general contractor in Connecticut. “When the pandemic started, we realized that we were at the beginning of a great suburbanization where the millennial generation is moving to the suburbs.”
The Auction.com analysis shows that 58% of online REO purchases made by buyers located in California were for out-of-state properties, the fourth highest of any state behind Utah, Colorado and Arizona. In some coastal counties such as Contra Costa, Los Angeles, Orange and San Diego, the percent of buyers purchasing out of state was above 60%.
Wenzel’s willingness to start buying in the uncertain days and weeks immediately following the pandemic declaration paid off.
“There was just no one else buying,” he said. “It was just a once-in-a-lifetime opportunity.”
Wenzel said competition for distressed properties has picked back up since those early days of the pandemic, but he still sees plenty of opportunity for these value-add investing opportunities given the broader millennial-driven suburbanization trend.
“You have the housing stock sitting on the market and it’s kind of obsolete in terms of being useful to the next generation,” he said, adding that he and his business partner completely renovate the homes they purchase to make them like new construction once completed. “These suburbs, they’ve really been lacking investment the last 10 years. They need people like us to come in and invest with capital and build for the future.”
Top 5 Counties for Out-of-State Buyers
Comanche County, Oklahoma
Located on Interstate 44 about 80 miles south of Oklahoma City and about 200 miles north of Dallas-Fort Worth, Comanche County had a population of 120,749 in 2019, according to data from the Census Bureau. The county experienced a net population increase of 221 people in 2019, its biggest increase since 2012. Lawton, Oklahoma is the primary city in the county and adjacent to the Fort Sill army base.
Auction.com data shows that 75 percent of all REO properties in Comanche County that sold via online REO auction so far in 2020 went to out-of-state buyers — up from 45 percent in 2019 and 29 percent in 2018. The average sales price for REO properties sold so far in 2020 in Comanche County was $28,240 — just $20.10 per square foot.
Calhoun County, Alabama
Calhoun County has attracted the nation’s second highest share of out-of-state buyers so far in 2020 despite a slight decrease in population in 2019. Census data shows a population of 113,605, down by 726 from 2018, for the county, which is located off Interstate 20 about 70 miles east of Birmingham and about 100 miles west of Atlanta. The county seat is Anniston, home to the Anniston Army Depot.
Sixty percent of REO properties purchased via online auction in Calhoun County in the first 10 months of 2020 went to out-of-state buyers, according to the Auction.com data. That was up from 20 percent in 2019 and 50 percent in 2018. REO properties in Calhoun County have sold for an average price of $30,808 so far in 2020. That amounts to $24.10 per square foot.
Richmond County, Georgia
Home to the city of Augusta, Georgia — host of the Masters Golf Tournament — Richmond County is the most populous of the top five counties for out-of-state buyers. Census data shows a population of 202,518 in 2019 and a net population gain of 851 compared to 2018. Augusta is located about 150 miles southeast of Atlanta and about 160 miles northwest of Charleston, South Carolina. The Fort Gordon U.S. Army base is also located in Richmond County.
Auction.com data shows 56 percent of REO properties in Richmond County that sold via online auction in the first 10 months of 2020 went to out-of-state buyers, up from 22 percent in 2019 and 31 percent in 2018. The average price for REOs sold so far in 2020 in Richmond County was $67,880, or $40.80 per square foot.
Salem County, New Jersey
Salem County is the only county among the top five for out-of-state buyers that posted a decrease in its share of out-of-state buyers through the first 10 months of 2020 compared to 2019. The Auction.com data shows 56 percent of REO properties sold so far in 2020 went to out-of-state buyers, equaling the share in Richmond County, Georgia, but down from 60 percent in 2019.
With a population of 62,385 in 2019, Salem County is also the least populated of the top five counties for out-of-state buyers. The county is located only about 45 miles southwest of Philadelphia and about 120 miles northeast of Washington, D.C. Census data shows a net population loss of 361 people in 2019. The average price for REO properties sold via online auction in the first 10 months of 2020 was $70,405, or $44.90 per square foot.
Rock Island County, Illinois
Home to two of the four cities that comprise the Quad Cities on the Illinois-Iowa border, Rock Island County had a population of 141,879 in 2019, down by 742 people from 2018, according to the Census Bureau. The county is home to the Rock Island Arsenal, the largest government-owned weapons manufacturing arsenal in the United States.
The Auction.com data shows that 54 percent of all REO properties purchased via online auction in Rock Island County in the first 10 months of 2020 were to out-of-state buyers. That was up from 40 percent in 2019 and 42 percent in 2018. The average price for REO properties sold via online auction so far in 2020 was $45,719, or $35.40 per square foot
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