Retirement cities are a gold mine for investors. To point out which ones are beneficial to the investment community, RealtyTrac released a report on real estate investing in cities that have become retirement hot spots, where at least a third of the population is age 54 or older.
"These popular retirement cities will very likely be an area of growth in the housing market over the next 15 years as baby boomers retire in greater numbers," said Daren Blomquist, vice president of RealtyTrac.
He added, "The baby boomer generation started retiring in 2011, a trend that will continue at least through 2029, ensuring plenty of demand for both rentals and owner-occupant purchases in these markets for the foreseeable future."
The data from RealtyTrac revealed that there are 40 cities throughout the country where at least 33% of the population is age 65 or older. Within these 40 cities, 25 reported annual increases in median home prices, while 27 had a positive capitalization rate, indicating rentals in those markets produce positive cash flow.
The California-based real estate data company ranked the top 15 of the 40 retirement hot spot cities based on the annual percent change in home prices as of May.
At the top of the list was the central Florida town of Dunnellon, where 38% of the population is retirement age or older and home prices rose more than 31% in the past year. The estimated cap rate in Dunnellon is higher than 10% based on the average rent for a three-bedroom home there.
Six other Florida cities joined Dunnellon on the top-15 list: Naples, North Fort Myers, Punta Gorda, Sun City Center, Venice and Orange County.
East Hampton in New York also made the top-15 list, coming in at No. 15. "The Hamptons will continue to grow into a retirement hot spot on Long Island, offering an attractive environment for seniors," said Emmett Laffey, CEO at Laffey Fine Homes International, which covers Long Island and the five New York boroughs.
Laffey added, "Developers’ appetite to construct housing aimed towards retirement-aged adults is growing again. They are well aware that this buyer pool will only increase over the next 15 years."
For investors looking to dive into the retirement hot spots, Blomquist believes that utilizing funds from a retirement account to purchase investment homes with cash — or at least a large downpayment — can give individual buyers a better chance of competing in this tight housing market.
Blomquist added, "Provided the investments are made with thorough research beforehand, this investing strategy also gives consumers a path to more quickly build their nest egg since all proceeds from the real estate investment — whether that be from rental cash flow or from selling the property — go directly back into the retirement account."