When searching for potential investments on behalf of my clients, I prefer metro areas with populations that are growing faster than the United States national average. I think that, as landlords, we have a better chance of success when selling our product (renting space) in areas where our pool of potential customers is growing the fastest. Where are we seeing this growth now? I track census data regularly to answer this question, and this month we will review what the results tell us.

If Buying Out of State, Let’s Look for Growth Areas

Changes in California are motivating my local clients to explore moving investments to other states. Slowing growth rates, rising taxes and expanding rent control (Pomona and Pasadena recently passed their own draconian measures) are making California look less inviting to investors. Many of us have “California escape plans” in mind: If things get bad enough, we will become a resident of a less restrictive state and just “visit” our house in California for 5 months out of the year. If we own investment real estate in California, however, we’ll still be stuck paying California taxes. The “first step” for some of these owners is to sell their California investments and, through tax-deferred 1031 Exchanges, purchase replacement income properties in other states. If you aren’t a California resident and don’t earn any income from the state, then you don’t need to pay CA’s ever-growing income taxes.

What Does Growth Look Like for the Entire Country?

Let’s look at population growth in the entire United States. According to the 2010 Census, our country had 309,300,000 residents. The Census Bureau’s estimate for 2022 is 333,200,000. That is total growth of 7.9% or an annual rate of 0.66%. If we are looking for growing metropolitan areas, we want to buy where population growth numbers are higher than this.

Fast Growing Regions of the USA

According to the US Census, our country’s population grew by 0.5% in 2023. The Bureau divides the country into four regions and reported the growth rates of each. The Northeast saw a population loss of 0.1%, while the Midwest and West saw 0.2% each. The US Census describes “The South” as the region of our country that is bordered by Oklahoma, Arkansas, Kentucky, West Virginia and Maryland in the north, Texas in the east and the Atlantic Ocean and Gulf of Mexico in the south. This region grew by 1.1% – over 1.4 million new residents – last year.

Most of my favorite cities for growth are in the South. Since 2010, the annual growth rates for Dallas, San Antonio and Houston were all 2% – almost 3 ½ times the national average. Austin, Texas’ population grew by 41% (!!) during that period; at a rate of 3.4% annually. That is over 5 times the national average! In 15 years of studying Census data, that is the largest growth rate that I remember seeing.

Also in the South are the growing cities of Florida. Orlando, Jacksonville and Tampa saw 2.5%, 2% and 1.5% annual growth in that same time period. Formerly sleepy areas such as Cape Coral-Fort Myers and Sarasota-Bradenton have seen growth rates of 2.7% and 2.2% and total population numbers that are approaching 900,000 residents each.

Atlanta, Georgia has added 1 million residents since 2010 for an annual growth rate of 1.4%. Raleigh and Charlotte North Carolina grew at 2.6% and 1.9% yearly, Huntsville, AL grew 1.9% per year, and Nashville, TN grew at 2% annually.

I picked those 14 cities off the top of my head from deals that I have participated in recently. Those 14 metro areas have added almost 8,200,000 residents since 2010 – this accounts for 34% of all new United States residents during that time!

Between 2020 and 2023, the Northeast and Midwest saw their populations decline by 445,000 and 60,511. The west’s population grew by a mere .02%, while the south added 3.6 million residents during this time – 94% of all growth!

Slow Growing or Shrinking Areas

Which metro areas are the slowest growing in the United States? No surprises here: Chicago, IL’s population has shrunk 0.02% annually since 2010 while the Los Angeles/Orange County metro area grew 0.03% annually. The New York City metro area (including nearby New Jersey cities) grew 0.32% every year during that period – half the national average.

Surprisingly, San Diego and San Francisco showed growth numbers that managed 75% of the national average. 5.6% total and 0.5% annually. A closer inspection of the data, however, reveals that the populations of these two regions have been shrinking since hitting highs in 2019. Is this part of a longer-term trend? It is hard to believe that it’s not.

Detroit, Michigan, a mainstay on “slow growth” lists for many decades managed 1.1% total growth, or 0.1% annually. Dismal numbers, indeed, but note that Detroit is growing three times faster than metro Los Angeles!

According to the Center for Disease Control (CDC), the United States Population grew 0.1% in 2022 solely from the difference between births and deaths. Therefore, a number higher than 0.1% is a sign of a net gain through migration and a lower number shows a net loss. As I said earlier, I believe that a growing metro population represents a growing pool of potential renters for landlords. A shrinking population means the opposite: more vacancies and lower rents.

What Does This All Mean?

Each year, I hear from a greater number of landlords who are considering selling their California investment properties and completing tax-deferred 1031 Exchanges out of state. The most common question I hear is “where should I buy?” I think that growing markets are a great place to start searching for your next investment property. If you’d like to talk about it, my toll-free office number is (877) 313-1868.

Written by Christopher Miller, MBA, Specialized Wealth Management

Christopher Miller is a Managing Director with Specialized Wealth Management and specializes in tax-advantaged investments including 1031 replacement properties. Chris’ real estate experience includes work in commercial appraisal, in institutional acquisitions for a national real estate syndicator and as an advisor helping clients through over five hundred twenty five 1031 Exchanges. Chris has been featured as an expert in several industry publications and on television and earned an undergraduate business degree and an MBA emphasizing Real Estate Finance from the University of Southern California. Chris began his real estate career in 1998. Call him toll-free at (877) 313 – 1868.

Securities offered through Emerson Equity LLC, member FINRA/SIPC. Emerson Equity LLC and Specialized Wealth Management are not affiliated. All investing involves risk. Always discuss potential investments with your tax and/or investment professional prior to investing.