Are you considering investing in Des Moines, Iowa real estate? There are many great places to live in Iowa as an increasingly popular Midwest city. As a matter of fact, Des Moines has had the most growth of any Des Moines city according to this article.
I’ve personally been investing in the Des Moines area for the last few years and have seen the pros and cons of investing here, but ultimately, hundreds of investors are buying investments here in Des Moines. Before jumping in, it’s wise to carefully weigh the potential rewards against the possible risks.
In this blog post, I’ll give you an overview of the Des Moines real estate market, discuss the top benefits and drawbacks of investing here, and provide tips to help you decide if putting your money into Des Moines housing is right for you.
Overview of Des Moines Iowa Real Estate
Des Moines is Iowa’s fastest-growing city, with a population set to top 1 million residents when surrounding suburbs are included. It enjoys economic stability and job growth thanks to government, finance, insurance, and publishing hubs. The cost of living is competitive, making it enticing for companies and talent. It also has great neighborhoods that are suitable for every family.
Like most Midwest cities, the market consists of various types of properties, such as single-family homes, townhomes, condos, apartments, multi-family units, commercial buildings, and land. According to Redfin, the median home price in Des Moines as of September 2023 was $208,000, which is a 5.3% increase from the previous year. The median price per square foot was $195, and the median rent was $1,100. Homes in Des Moines typically sold after 11 days on the market, indicating a high demand and a low supply.
Why Should You Invest in Des Moines Iowa Real Estate?
There are many reasons why living and investing in Des Moines Iowa real estate can be a smart move for your financial goals. Here are some of the main benefits of buying a property in Des Moines:
Strong economy: Des Moines is the economic and cultural hub of Iowa, and a major center for the insurance, finance, and healthcare industries. It is home to several Fortune 500 companies, such as Principal Financial Group, Casey’s General Stores, and Meredith Corporation. It hosts the first caucuses of the presidential primary cycle, attracting national and international attention. The unemployment rate in Des Moines is lower than the national average, and the median household income is higher than the state average. The city also has a diverse and vibrant economy, with sectors such as manufacturing, education, technology, and tourism contributing to its growth.
Low cost of living: Des Moines is one of the most affordable cities in the US, with a cost of living that is 10% lower than the national average, according to BestPlaces. The housing costs, utilities, groceries, transportation, and health care are all cheaper than the US average, making it easy to live comfortably and save money in Des Moines. The city also has low taxes, with a property tax rate of 1.6% and a sales tax rate of 6%.
Commonly the folks who are considering Des Moines Metro as their next home are seeing it as a great place to live for less and still make a great salary. Even allowing many families to become one-income families and continue the same lifestyle that dual income provided in other more expensive cities.
High quality of life: Des Moines is a great place to live, work, and play, with a high quality of life that ranks among the best in the nation. The city has a rich cultural and historical heritage, with attractions such as the Iowa State Capitol, the Des Moines Art Center, the Pappajohn Sculpture Park, and the Blank Park Zoo. Its vibrant nightlife has bars, restaurants, clubs, and casinos to suit every taste. The city is also known for its outdoor amenities, such as parks, trails, lakes, and rivers, where you can enjoy activities such as biking, hiking, fishing, boating, and golfing. Des Moines has a friendly and welcoming community, with a diverse and inclusive population.
What are the Pros and Cons of Investing in Des Moines Iowa Real Estate?
Like any investment, buying a property in Des Moines Iowa real estate has its advantages and disadvantages. Here are some of the pros and cons that you should consider before making a decision:
Pros
High rental demand: Des Moines has a high rental demand, driven by its growing population, strong economy, and low homeownership rate. According to the U.S. Census Bureau, the population of Des Moines grew by 5.4% from 2010 to 2020, making it the fastest-growing city in Iowa. The city also attracts many young professionals, students, and retirees, who prefer to rent rather than buy. The homeownership rate in Des Moines is 58.9%, which is lower than the national average of 64.8%. This means that there are more potential tenants than homeowners in the city, creating a favorable market for landlords. Anecdotally when I speak to investors in the area it is very income for them to be struggling to find tenants. Especially when listing a property for rent in the spring and summer months. Contrary to that, if you list a unit in October-January it is more common for it to take a bit longer to rent because who in their right mind intentionally moves during the winter months if they have any say over the matter?
High rental income: Des Moines has a high rental income, compared to its low property prices. According to RentCafe, the average monthly rent in Des Moines as of October 2023 was $1,339, which is a 6.8% increase from the previous year. The average cap rate, which is the ratio of net operating income to property value, was 2.5%, which is higher than the national average of 1.9%. The average cash-on-cash return, which is the ratio of annual cash flow to total cash investment, was 2.7%, which is also higher than the national average of 2.1%. These metrics indicate that investing in Des Moines Iowa real estate can generate a good return on your investment. Depending on where you are coming from “high rent” in Des Moines might not be your first thought. What I would say personally is the ability to increase rents for most properties is a great additional cashflow opportunity, especially if you are providing a nice clean updated rental unit, the folks in the area have the income to afford higher rents many times.
High appreciation potential: Des Moines has a high appreciation potential, due to its limited inventory, high demand, and low interest rates. According to Zillow, the home values in Des Moines have increased by 13.4% over the past year, and are expected to rise by another 11.6% in the next year. The median home value in Des Moines as of October 2023 was $208,000, which is still lower than the national median of $303,000. This means that there is still room for growth in the market and that buying a property in Des Moines can be a good long-term investment. This is another one that when people look at the data, Des Moines metro hasn't have high appreciation in past years, and commonly that is a reason investors actually like Des Moines, there is a bit of cash flow and a bit of appreciation, not drastic one way or another. But my optimistic attitude here leads me to look at Des Moines Metro at 750,000 residents and if and when we reach the 1 million mark, the growth in the city will be massive. We are already getting reports and accolades that will only improve that potential growth.
Low vacancy rate: Des Moines has a low vacancy rate, making it hard to find a suitable property to buy or rent. According to the U.S. Census Bureau, the vacancy rate in Des Moines was 5.5% in 2020, which is lower than the national average of 6.5%. This shows that there are fewer available properties than potential buyers or renters in the city, creating a competitive and tight market. As a result, you may have to act fast and pay a premium to secure a property in Des Moines.
Cons
Seasonal fluctuations: Des Moines has seasonal fluctuations, which can affect the rental demand and income. Des Moines has a humid continental climate, with hot and humid summers and cold and snowy winters. The average temperature in Des Moines ranges from 22°F in January to 86°F in July. The city also experiences severe weather events, such as thunderstorms, tornadoes, floods, and blizzards. These factors can influence the rental demand and income, depending on the season and the location of the property. For example, properties near the university or the downtown area may have higher demand and income during the school year, but lower demand and income during the summer. Properties near the river or the lake may have higher demand and income during the summer, but lower demand and income during the winter.
Maintenance costs: Des Moines has maintenance costs, which can reduce your net income and cash flow. As a property owner, you are responsible for maintaining and repairing your property, as well as paying for property taxes, insurance, utilities, and other expenses. These costs can vary depending on the type, size, age, and condition of the property, as well as the market conditions and tenant behavior. You should always factor in these costs when calculating your return on investment, and set aside a reserve fund for unexpected expenses.
What are the Different Types of Real Estate Investments in Des Moines Iowa?
There are different types of real estate investments that you can choose from in Des Moines Iowa, depending on your goals, budget, and risk tolerance. Here are some of the most common types of real estate investments in Des Moines:
Single-family homes: Single-family homes are properties that are designed for one family or household, and have a separate entrance, kitchen, bathroom, and living space. Single-family homes are the most popular type of real estate investment in Des Moines, as they have a high rental demand, income, and appreciation potential. They are also easier to manage, maintain, and finance than other types of properties. However, single-family homes also have a higher purchase price, lower cash flow, and higher vacancy risk than other types of properties.
Multi-family homes: Multi-family homes are properties that are designed for more than one family or household, and have multiple units, each with its own entrance, kitchen, bathroom, and living space. They can range from duplexes and triplexes to apartment buildings and condominiums. Multi-family homes are a good type of real estate investment in Des Moines, as they have a lower purchase price, higher cash flow, and lower vacancy risk than single-family homes. They allow you to diversify your income and reduce your risk by having multiple tenants. However, multi-family homes also have higher management, maintenance, and financing costs than single-family homes. They also have more regulations, competition, and tenant issues than single-family homes.
Multifamily Conversions: I wanted to add this type of rental in the article because it is very common in Des Moines Proper specifically. This would be the type of property that originally was built as a single-family home but over time the owner transitioned to a multifamily, usually 2-8 units. The City of Des Moines is very particular about these (ask me how I know, as I own multiple of them personally). They usually sell for a bit less than what you would expect, have a bit higher cash flow, and commonly have higher repair expenses on average per year.
Commercial properties: Commercial properties are properties that are used for business purposes, such as offices, retail stores, restaurants, hotels, warehouses, and industrial buildings. Commercial properties are a lucrative type of real estate investment in Des Moines, as they have a higher rental income, appreciation potential, and tax benefits than residential properties. They have longer lease terms, lower turnover rates, and more professional tenants than residential properties. However, commercial properties also have a higher purchase price, lower cash flow, and higher risk than residential properties. They have more complex management, maintenance, and financing requirements than residential properties. They also depend on the economic and market conditions and may suffer from vacancies or losses during recessions or downturns.
Land: Land is a type of real estate investment that involves buying a vacant or undeveloped piece of land, and holding it for future use or development. Land is a speculative type of real estate investment in Des Moines, as it has a low purchase price, low maintenance costs, and high appreciation potential. It also has a high flexibility, as you can use it for various purposes, such as farming, recreation, or development. However, land has a low or no income, high taxes, and higher risk than other types of real estate investments. It has a low liquidity, as it may take a long time to sell or develop. It also has more legal and environmental issues than other types of real estate investments.
Client Success Story
With over a decade of experience as an agent and real estate investor myself, I’ve helped numerous clients successfully build investment portfolios in the Des Moines market. The very first investor I help is someone that I met online on Biggerpockets. He was flipping a house and lived in Israel. He wanted someone to watch the contractor's work and ensure they were doing what they said they were. I also helped him and the contractor get a full understanding of what renovations were needed to maximize value from a 2 bedroom to a 3 bedroom.
I made it a point to oversee the project and once he was ready to sell it we strategized the marketing for selling the home. To this day, I still drive by that house and remember, my very first listing as an agent and the relationship with my first client.
One investor I’ll call Scott reached out on the recommendation of several local agents. Scott was researching his first rental property purchase in Des Moines but had several questions about the market, financing, and managing out-of-state investments.
“Thanks for all the education and hand-holding through my first Des Moines investment,” he said at closing. “Your market expertise and investing perspectives were invaluable. Let’s find the next one!” Experiences like this are immensely rewarding. I look forward to helping many more new investors tap the promising potential of Des Moines real estate.
Are You Ready to Invest in Des Moines, Iowa Real Estate?
Investing in Des Moines Iowa real estate can be a rewarding and profitable venture if you do your homework and choose the right type of property for your goals, budget, and risk tolerance. Des Moines is a fast-growing and livable city, with a strong economy, low cost of living, and high quality of life. It also has a high rental demand, income, and appreciation potential, as well as a low vacancy rate, cost, and competition.
However, investing in Des Moines Iowa real estate also has its challenges and drawbacks, such as seasonal fluctuations, maintenance costs, and risk factors. You should always weigh the pros and cons of each type of real estate investment, and consult a professional before making any decision.
If you are interested in learning more about investing in Des Moines Iowa real estate, or if you need help finding the best property for your needs, book a free consultation with me. I am a licensed and experienced real estate agent, who specializes in helping investors like you achieve their financial goals. I can help you find the best deals, negotiate the best terms, and manage the entire process from start to finish.
I can also provide you with valuable insights, tips, and resources to help you succeed in the Des Moines Iowa real estate market. Don’t miss this opportunity to invest in one of the hottest and most promising markets in the US. Contact me today and let me help you turn your dreams into reality.
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