As a financial editor, I learned to look at stocks like a business. The numbers have to make sense. The price you’re paying has to have some reasonable relationship to the company you’re buying – its sales and earnings. That’s why, before the crash of 2000, I recommended that investors get out of the Nasdaq and other sky-high stocks.

The numbers simply didn’t make sense.

Yet, most investors I speak to who got burned when that bubble burst still say they couldn’t see it coming. That no one could. Not true.

You could see stocks selling for hundreds of times sales and thousands of times earnings. Worse, you saw stocks that never came close to posting a single penny of earnings that rose 5- or 10-fold in a year or two. All driven by speculation. None of it driven by fundamentals.

And what’s the most fundamental criterion there is? Earnings. It’s the same with real estate.

Rental property is tethered to the income it will produce for its owner. Single-family homes are anchored by the income of their potential buyers.

Once properties break these bonds, they go beyond fundamentals and into speculation. And when properties keep rising well beyond justifiable multiples of rent and income, they go into bubble territory.

That’s where we are in many real estate markets right now. To name just a few:

South Florida

Las Vegas

Seattle

the Greater New York Metro Area (including Connecticut and New Jersey)

the Greater Washington DC Metro Area (including Virginia and Maryland)

much of Massachusetts and Colorado

and practically all of California

The easy money has been made in these bubble markets. Now, only buyers of distressed property will profit there.

But the smartest investors will use these bubbles to their advantage.

No matter where you live – and without ever stepping foot in these places – you can position yourself for triple-digit profits in the next two to three years. Without undue risk. Without a hefty investment of time spent managing the investment properties you buy. And without having to wait 10 years (or even five) to cash out with substantial gains.

How?

The key is to put yourself in the toll path of the money that’s escaping these bubble areas. That money is flowing in record amounts to some of the best-value cities in America. And it can flow right into your pocket.

These are cities that are often rated near the top in national quality-of-life surveys. Their downtowns have been (or are being) revived. They offer a wide choice of entertainment and cultural activities.

They’re business friendly and have strong, diverse economies. They’re not one-trick ponies, vulnerable to a shock in any one industry. They have population and job growth. They tend to be located in warm or mild climates. And they are attracting a growing number of “Bubble Market Refugees” – the self-employed and the baby boomers looking for early retirement.

The prices of properties here still make sense relative to the rental income they command. They sell at an average of 10 to 12 times their gross annual rents. That’s chicken feed compared to the 30 times rent (or more) in Boston and LA. And that means, after your down payment, you can easily cover your costs and get 100% of the appreciation. This way, a $10,000 down payment can turn into $30,000 to $50,000 or more in two to three years. And when you learn to buy some of the better values in the market, you can even buy properties with 100% financing (no money down) and still have them pay for themselves with cash flow.

Prices are still reasonable relative to the income of potential buyers, too – just three to four times the median income in the area. That’s a fraction of the nine to 11 times income that homes are currently selling for in Miami, Los Angeles, and San Francisco.

Yet, prices are just beginning a strong uptrend in these bargain pockets, driven by an influx of folks from the Bubble Cities of the U.S. But you can get in now and make a killing as these Bubble Refugees bid prices up.

Profiting From the Great Bubble Market Exodus

So where are Bubble Market Refugees starting to flee to?  In small- to medium-sized cities with the following characteristics …

You can buy properties for 10 times annual rent or less.

Properties are selling for 3 to 4 times the median household income.

There is a diversified economy and steady job growth.

There is steady population growth (including a lot of baby boomers migrating in from much more expensive areas).

The area has a warm or mild climate (especially attractive to retirees) and is consistently rated high in national quality-of-life surveys.

My staff at Main Street Millionaire and I have been researching these cities over the last year. I’ve visited them, made offers, and have begun to buy. I was able to buy one multi-unit residential property, for instance, at 15% below market and only seven times rental value.

At the same time, I just missed a solid 24-unit apartment building that was selling for less than six times annual rent in a respectable B Area that is rapidly improving. It generated more than enough cash to pay a healthy dividend after all carrying costs, including professional management. And that would be on top of some very substantial appreciation potential.

A bank had the property, but when I called, it had just been taken. But these are the kinds of deals you can still find in the “Secret Sunbelt Cities.” For this same type of property in a similar area here in South Florida – with the same exact income – the asking price would have been two or three times the amount.

I intend to take advantage of opportunities like these in the next few years. Investing in areas that offer a high quality of life, a growing population and economy … and some of the few pockets of good real estate values remaining in America. I encourage you to do the same.

“Change brings opportunity.”– Nibo Qubein

Justin Ford is an active investor in real estate and global stock markets. He is also a veteran financial writer. He has published, edited and written for over a dozen international investment newsletters, including launching the US version of the Fleet Street Letter, the oldest continuously published newsletter in the English Language.
He is the author of Seeds of Wealth, a program for getting children to adopt good money habits from an early age. He is the editor of the Seeds of Wealth Quarterly Investment Update Bulletin. He is a contributing editor and author to a number of books on personal finance, including Michael Masterson’s Automatic Wealth and Dr. Van Tharp’s Safe Strategies for Financial Freedom.