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Huntsville, AL skyline

If you are looking for a road map showing the best and worst cities in which to invest right now in the United States, you might glance at what Local Market Monitor Inc. of Cary, N.C. has come up with.

But don't bet the barn on it.  Many other industry watchers wouldn't.

Still, says the North Carolina marketer, there are hot spots to watch and cool areas to avoid while the economy is still trying to straighten itself out, The Wall Street Journal reports.

Investment properties on the cheap may be found in Durham, N.C., Indianapolis and Huntsville, Ala.

They are among the best places to invest now, according to the Local Market Monitor report. Hard-hit Las Vegas and Orlando, Fla., are among the riskiest.

Local Market Monitor identifies Hagerstown, Md.; Jacksonville and Port St. Lucie, Fla.; Modesto, Calif.; and Myrtle Beach, S.C. as speculative areas.

Other metro areas with large percentages of relatively stable jobs and moderate growth include Knoxville, Tenn.; Lexington, Ky.; and Indianapolis.

Local Market Monitor analyzes real-estate trends for lenders, builders and investors. The firm compiled its first Investor Suitability Report using economic data through July 31 for 315 U.S. markets. It has been in business since 1990.

Durham, NC

The firm is best known for its housing-market forecasts, which use "equilibrium" home prices: what home values should be in relation to incomes, job growth and population.

In its new report, it uses similar data to rank communities by their investment prospects, focusing on single-family homes.

Regions that rank highly for investment suitability are those where there is a low probability that home prices will fall further, says Local Market Monitor President Ingo Winzer.

They are places where income is growing moderately; where employment is relatively stable because of a large percentage of jobs in health care, education or government; and where a relatively small share of jobs is in construction or financial services, which have been volatile.

Celebration, FL

Job losses in government and education tend to come later in an economic cycle, so some areas could be hit harder in coming months, according to the WSJ.

The report, which excludes towns with fewer than 200,000 residents, focuses on price-appreciation potential instead of rental income, since falling home prices usually result in higher vacancy rates in apartment buildings and lower rents overall, Winzer says. Good markets for conservative investors are those that already have stabilized and should yield average returns,  Winzer says. Dangerous markets probably will see further price declines and have little potential for a turnaround because of poor local economies.

So-called speculative markets, by contrast, are those where prices could fall further, but which also have potential for greater appreciation of 3% to 5% annually after bottoming out--making them more suitable for investors with stronger stomachs.

In the best markets, home prices already are stabilizing.

Durham, N.C., for instance, is home to Duke University and is near the University of North Carolina-Chapel Hill. Big companies like International Business Machines Corp., GlaxoSmithKline PLC and Nortel Networks Corp., as well as numerous biotech start-ups, have facilities at the nearby Research Triangle Corporate Park.

Click here to enlarge map

About 40% of area jobs are in health, education or government, according to Local Market Monitor.

Haywood Davis, owner of a Century 21 real-estate brokerage in Durham, told WSJ home-sales volume in the area increased 13% last month over July 2009, though prices rose only slightly.

Jason Moore, a 34-year-old auto-sales manager in Baltimore, took advantage of plunging home prices in his hometown of Indianapolis to snap up an investment property there--a brand-new four-bedroom, two-bath home--for $56,000 late in 2008.

Prices in Indianapolis were falling because of foreclosures and rising unemployment.

Disappointed with their stock-market investments, Moore and his wife, Keisha, 32, decided to buy an investment property to add to their portfolio.

The Indiana house is generating a positive cash flow of about $300 a month in rent after mortgage, insurance, taxes and fees, he says.

"It has been adding income, and the tax benefit has been helpful,"  Moore tells WSJ.

Yet in gambling-and-tourism-dependent Reno, Nev., home prices slid 50% from their market peak in 2006--and don't seem to have bottomed yet.

Winzer calls the city "frankly dangerous" for investors, along with Las Vegas and Naples and Orlando, Fla., because home prices are still tumbling and local economies are shaky.

John Burns

John Burns, chief executive officer of John Burns Real Estate Consulting Inc. of Irvine, Calif., tells the WSJ he thinks Reno and Las Vegas have "overcorrected," but he agrees prices could fall further.

Dana Hall-Bradley, a real-estate agent in Florida's Orlando-Kissimmee area, near Disney World, says sales were up 39% last month over July 2009. But prices are still sliding because most sales involve so-called distressed properties--bank-owned homes or short sales, where lenders agree to sell properties for less than they are owed.

Investors, especially those from Canada, the U.K., Brazil and Venezuela, are buying vacation and retirement villas, condos and townhouses in the area, Hall-Bradley says, because prices already are 40% to 50% below what they were as late as 2007. Many are paying cash.

Dana Hall-Bradley

Condos are even cheaper. "Right now you can get a condo for $30,000 that was selling for $150,000 to $200,000 in 2005 or 2006," she says.

Eamon Lavin of Locust Valley, N.Y., recently purchased three condo units and a single-family home in Celebration, a planned community outside Orlando designed by Walt Disney Co.

Lavin, 43, tells the WSJ he knows prices could tumble further but he isn't worried because he plans to rent out the properties for 10 or 15 years.

"I love the area, and I think it is going to come back," he says. "I get more of a return on investment than putting it in a bank or anywhere else." 

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