Now could be a great time to buy a retirement home and rent it out -- before prices are driven up by the millions of boomers turning 65 and heading for the most popular retirement havens, says RealtyTrac, which specializes in foreclosures, auction, bank-owned, for-sale-by-owner and resale properties.
The table below displays 15 markets that currently have high percentages of residents older than 65, home prices that have risen in the last year and attractive rental returns. To settle on the top 15, RealtyTrac also factored in average annual temperature, percentage of sunny days and the average cost of living.
"Now is an opportune time to buy and take advantage of appreciating prices because those markets are bouncing off the bottom," says RealtyTrac Vice President Daren Blomquist. "We think because they are retirement hot spots, the long-term prospects for further appreciation are good as millions of boomers retire in the next few years," he says.
The over-65 population in all of these featured communities is greater than a third. How will that affect further increases in price and long-term rentability? Blomquist says, "I see it as a positive that a lot of retirees are already there, and these places have established themselves as places for retirees to go. I think that means there is going to be a lot of continuing demand."
But he doesn't think the current appreciation rates will continue indefinitely. "These increases aren't sustainable in the long run," he says, "but prices are still accelerating."
RealtyTrac bases the rental prices and resulting capitalization, or cap, rates on three-bedroom units, an attractive configuration for retirement planning. To figure a cap rate, divide the net rental income (after expenses) by the sale price. Blomquist says that in some pricey markets -- those in New York and California, particularly -- "From an investment perspective, it might be better to buy up distressed properties and then flip them to retirees coming into the market who want a home in good condition."
Hottest retirement markets for real estate investing
|City||Percentage of population who are retirement age||Price appreciation||Median sales price||Capitalization rate|
|Hot Springs Village, Ark.||57.80%||25.93%||$170,000||4.87%|
|Sun City, Ariz.||72.80%||19.90%||$113,275||8.86%|
|North Fort Myers, Fla.||43.60%||19.01%||$84,500||9.39%|
|Rancho Mirage, Calif.||45.70%||16.77%||$430,000||2.70%|
|Punta Gorda, Fla.||44.50%||16.71%||$138,938||6.11%|
|Sun City Center, Fla.||75.70%||14.66%||$99,750||8.73%|
|Green Valley, Ariz.||72.40%||10.13%||$144,550||6.48%|
|Seal Beach, Calif.||38.90%||9.84%||$692,000||2.57%|
|Orange City, Fla.||33.80%||8.80%||$68,000||12.92%|
|East Hampton, N.Y.||43.10%||8.18%||$952,500||2.09%|