Diversify Your Investment Portfolio In Mid-Sized Cities

Posted by Chris Clothier on Fri, Jan 16, 2015

realestateinvestment smallcitiesThere’s a gleam in the big city that attracts investors. In a lot of ways, they’re attractive. Living in New York City is a dream for some people, as is settling down in big gleaming West Coast metropolises like Los Angeles and San Francisco.  Memphis, while it is a big city, is nothing compared to Dallas and Houston in terms or the size of the city.  Memphis is small city real estate and investors sometimes don't recognize it as a gem!

These big cities get most of the attention from investors and truth be told, you can go anywhere in the world and mention these cities and people know exactly where you are talking about.  Ask them about small and medium cities and the chances of people knowing about them get slim.  Real estate investing is about more than the name and size of the city.

There’s something glamorous about big cities when it come real estate investment. 

That doesn’t mean that the only good options for investors are in high-density, urban primary markets. In fact, alternative markets in mid-sized and small cities are ripe for the taking for real estate investors. Maybe it’s time to turn your investment strategies less to the big markets and more to lesser-known markets that have great investment potential.  

At a very minimum, it might be a good time to take a look at smaller cities and the advantages they offer for real estate investors.  Mixing our portfolios to include big cities and medium or small cities is a smart move.


Identifying a Promising Alternative Investment Market

Look for Stability & Growth

The good news about mid-sized and small cities is that, in comparison to larger markets, they remained relatively stable during the recession in terms of job growth and employment.  Many did not expereince the wild swings in home values and the fluctuating roller-coaster ride that big cities and coastal areas expereinced.  That isn’t to say that it will always remain that way, but the trend is good news for anyone looking to invest. Stability in times of national economic crisis is a good quality for any investor to chase after.

Many of these cities are also in good positions for growth as people move in for job opportunities and a more affordable cost of living.  There are big cities liek Dallas and Houston that are highly affordable, but the demand for jobs and the demand for housing make them highly competetive.  

A mid-sized city like Memphis is a very attractive alternative city not just for investors, but also for companies looking to build new facilities and want low cost labor in need of jobs.  Distribution and transportation are foundational industries here and companies looking to expand their distribution networks look to Memphis because it is highly affordable and there is less competition than in the larger markets.  They can build new facilities and have them staffed almost immediately and at a lower cost that in larger markets.  That is a huge advantage for these smaller markets.

Supply to Meet Demand

Listen to the needs of the people. Pay attention to where people are moving — are they going to downtown apartments?  Are  they clustering in suburbs? In places that are growing, there’s going to be a demand for housing, which you can take advantage of both with single-family and multi-family properties.  We call it the path of progress - where things are growing.  At the same time, there is re-gentrification that takes palce where the old becomes new again.  

Either way, smaller mid-sized cities tend to have these types of projects that are easier to identify and trends are easier to track and follow.  Larger cities can sometimes swallow up these types of areas and make them harder to find unless you are a full time professional with the nose to the ground constantly looking for the next deal.  

These smaller cities are loaded with demand for quality housing and lots of opportunity for investors.  The bonus of the small to mid-sized cities is that those opportunities are often easier to find than they are in large cities. 

Learn the Lifestyle

Do your homework. Consider, as always, your location and what distinct advantages is presents for your tenants. Walking distance to a college campus? Close to downtown restaurants and shopping? Take the time to get to know this smaller city.

By the same token, get to know your competition. A smaller city may mean that there’s less of it, but it doesn’t mean that you’re alone by any means. Talk to other real estate investors and professionals to get a feel for demographics and trends in the area. Learn from their experience if you can.

When you’re investing remotely, which often times has to be done if you want to go to a smaller city, you need a guide.  We have prepared an easy to read 42-page e-Book and you can download it for free right here.  It id a great guide and will help you make the best decisions when investing out of area.

EBOOK

When investing in real estate, remember to invest where you’re comfortable. Be where you want to be. That may mean going to primary markets — but it could be exploring the alternatives. Don’t discount smaller cities that have a lot to offer.

How do you feel about investing in smaller, alternative markets? Tell us in the comments.

 

image credit: Sonny Abesamis

 

Topics: real estate investment, investment strategies