Where to Invest (Part 5) – The Mid Atlantic and New England

Welcome to another edition of the Coast-to-Coast Real Estate Investor.

Last week we discussed the Midwest, and how although it’s not a raging market, you can make sensible investments there. To make last week’s material short, look at properties in the Midwest as kind of a blue-chip investment that plug along at steady rates and produce solid cash flow.

This week we’re going to look at the Mid-Atlantic and New England areas – another set of regions for which that “blue-chip” nametag could apply.

Make no bones about it – that great megalopolis from Washington, DC and up through most all of New England is pricey. And, much of it – DC, New York, Boston, Hartford, Philadelphia, etc., has suffered the effects of speculative buying, running prices up so high that the markets are priced out of the range of the median buyers in the area. Prices in the big cities are more related to the effects of the greater fool theory, which I’ve talked about in prior episodes, than any real sense of value. What’s more important, is those markets have stalled and in a lot of cases we’re seeing prices decline. In my book, it had to happen.

Despite the Mid-Atlantic region and New England areas being pricey, there are opportunities for investment if you know where to look. Plus, with the sizable populations in the area’s huge cities – who tend to be priced out of the housing market at this point – the natural result is the population moving further out in order to find affordable housing. That means the more reasonably-priced regions outside of the core metro areas are getting increased attention – and that kind of demand pressure will cause those prices to rise.

With that in mind, let’s start in Maryland.

The Eastern Shore of Maryland – which is the area of land east of the Chesapeake Bay, for the longest time was a sleeper. There was just this mental barrier – despite the existence of the Chesapeake Bay Bridge - to crossing the Bay. That ended about 5 years ago, and populations spread to the other side. Some of it is concentrated close to the bridge for commuting to Annapolis, Baltimore, and Washington, DC, but the real prospects stem from the interest by retirees and baby-boomers who are moving to the more rural areas.

It’s a pleasant quality of life on the shore – small towns dot the landscape, and only a couple of small cities exist there, and it’s pretty water-oriented. That kind of bucolic combination makes for a perfect retirement choice. Prices have risen substantially over the last 5 years, but there’s still a lot of reasonably-priced real estate on the shore, and many areas have yet to be discovered. I’ll add in most areas of Delaware – particularly the rural areas into this discussion.

Additionally, I can’t forget discussion of the ocean resorts like Ocean City, MD and Rehobeth, DE. While most of the resort property is sky-high at this point, there are pockets – for example around Ocean City’s bayside (not oceanside) that still offer some value for the typical investor.

On a final Maryland note, certain areas of Western Maryland, particularly Hagerstown are promising because they are commutable to the outer reaches of DC growth, and have much better pricing than the DC suburbs…and the benefit of rural quality of life.

Next is Pennsylvania

In Pennsylvania I will point to the Amish Country in and around Lancaster. People fleeing the congestion of Philadelphia often pick the Amish Country as their favored destination. Make no bones about it – the Lancaster region has grown substantially because of that migration, and prices have moved accordingly. It used to be that one could find houses all day long in the low $100’s; the entry point now is closer to $200,000, but that doesn’t mean you can’t find property well under that. In particular, row houses in Lancaster and many of the other smaller cities and towns can still be had for even under $100,000 and make good rental units. Fixer-upper country property is still available at modest prices as well…and all of it in my book is destined for constant appreciation.

Harrisburg and York, Pennsylvania are two other good choices. York is undervalued by many standards, and is quickly gaining speed as a commuting point for people working in northern Baltimore. It’s the perfect combination – reasonable values and a do-able commute.

I’m also a fan of Harrisburg. It’s the capital city of Pennsylvania, which always bodes well for employment – eventually translating into buyers and renters. Prices are still modest by national standards, and people are quickly choosing Harrisburg as an alternative to living in the congestion of places like Philadelphia. Row houses in rental neighborhoods can run as low as the 30’s (sometimes lower), and singles can be had in solid rental areas right around $70,000.

New England States

I’m going to lump all the New England States – New York, Connecticut, Vermont, New Hampshire, Massachusetts, Rhode Island, and Maine into somewhat the same ballgame. I think the perception is that all of New England is priced beyond reason, and to a certain extent, that is not a bad interpretation.

But, as expensive as New England is, if you dig, you can find nuggets of gold. Principally, you need to look well away from the obvious choices like Boston or Hartford and into the rural areas. There are exceptions to that, but the rural areas and small towns – and in particular inland - away from commuting rage to the big cities are where the prices are within investor criteria. These are areas that will benefit from quick appreciation as populations in those states migrate and retirees look for better quality of life.

In New York, you’ll find scattered nuggets around the Finger Lakes region. Some of the cities along Lake Ontario show promise price-wise. Buffalo comes to mind as having some of the better-priced property in the country…and good rental rates as compared to prices. But, winters there are definitely an issue that must be factored in - and in my book could all but eliminate consideration of locations along Lake Ontario.

Rhode Island is tough if you are price-oriented as I am. The state is simply so small that much of it is commutable to Providence and Boston - and feels the effects. It’s a very popular state as well, with a stretch of coastline, and a favorite of the rich and famous. All of that seems to keep prices quite high.

In Massachusetts, believe it or not, you can still find some gems along the southern coast south of Boston. They’re rare, and of course disappear quickly, but if you value that New England maritime feel, this is one place you can look.

Inland, in smaller cities and towns like Springfield, and even the university city of Amherst (college towns are generally a good option), you’ll find good investment opportunities.

Connecticut has a plethora of small cities from which to choose. Torrington on the west side of the state, Putnam on the East, and even Manchester right outside of Hartford are all examples of reasonably priced Connecticut towns. As with all of New England, the rural areas are getting increased attention as people seek to escape the rat races of the big cities.

Vermont – You’ll need to go pretty rural, but investor-priced properties can be located in certain of the smaller towns and cities. Rutland and Barre are two locations to consider, but for the most part, unless you are willing to take on negative cash flow for a higher priced property, or go deeply rural and wait for appreciation to catch up, VT is rugged, rural, and pricey.

New Hampshire –Laconia, near Lake Winnipesaukee in New Hampshire’s Lakes Region is promising because of its proximity to the water. Beyond that, you have to get pretty far into the country to find modest investments

Maine - Maine is like the other New England states – you’ll find deals in the smaller towns and cities, particularly inland. However, Maine has a couple of exceptions that are noteworthy. Portland, the capital city, which is also waterfront, still has some pickings. Plus, there are quite a number of small towns dotting the coast, where if you look – and especially if you are willing to get into the $200,000 range - you can find a good property. And, there is a smattering of smaller cities and towns located along tributaries and rivers that bring the water-orientation into play. In places like Belfast, Bangor, Bucksport you’ll often find occasional nuggets, although you have to spend time to locate them.

As I wrap up with Maine, I’ll mention a side benefit to buying in the Mid-Atlantic and New England, and that is the availability of historic property, particularly the fixer-uppers that you can often find. Yes, rehabbing a historic property takes its own set of skills and values, but there are distinct advantages to buying historic buildings. Much of this I’m going to save for a later episode, but there are significant tax credits available (credits, not deductions) for owning and rehabbing historic property. Plus, the rarity of a historic property creates an unusual level of desire/demand along with associated pricing.

So, that will give you a sense of what’s available and the kinds of tactics you need for investing in the Mid-Atlantic and North East. There are plenty of unique finds, if you know where and how to look. Plus, the stability and population situation in those areas can make for solid long-term value.

Next week, I’ll be leaving the discussions of locations behind and turn to an overall game-plan of what you need to do to invest out-of-state successfully. It’s the first of the how-to lessons, and one you won’t want to overlook.

Have a great day, and live your real estate dreams!