Do Underrated Markets Make Better Real Estate Investments?

Posted by Chris Clothier on Tue, Oct 4, 2016

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New York, New York. San Francisco, California. Los Angeles, California. Miami, Florida.  

As real estate investors, we hear the names of these cities and get stars in our eyes. It's hard not to drool over such glamorous markets from time to time. After all, they've got it all: prestige, incredible properties, legendary profits ... what's not to love?

A lot of things, as it turns out. For one, competition in these sought-after markets is incredibly steep. International real estate investors want their slice of the pie when it comes to these markets, so you’re not just competing with domestic competitors. On top of that, the barrier to entry is lofty. It’s hard to crack into one of these markets. Most investors spend years clawing their way up to that point if they didn’t already have the capital to do so readily available.

For your average real estate investor, is it even worth it?

Granted, in the modern day, some things are making it easier for all investors to throw their hat into the ring of any market that they choose. There have always been REITs, but crowdfunding has opened up a whole new world for real estate investors to get involved in virtually any market with little to no barrier to entry.

But what about real estate investors who still want to go the traditional buy and hold route? Are they just stuck?

Or maybe we should stop chasing hyped, “hot” real estate markets.

Secondary real estate markets hold the real key to steady, reliable positive cash flow for real estate investors. Secondary real estate markets were once dormant, but have begun growing exponentially in both commercial and residential sectors in the past few years.

And for good reason. Moving away from primary markets like New York City and Chicago and into secondary (and even tertiary) markets brings some distinct advantages:

5 Advantages in Secondary Markets for Real Estate Investors

1. Less Competition

Most obviously, a secondary or tertiary market is just going to have fewer investors (and really, fewer homeowners) looking to get a piece of the pie. That means you’re going to have to deal less with bidding wars, and there’s going to be more to choose from and less stress in the entire acquisition process. If you like feeling frenzied, maybe that’s not a plus.

2. Smaller Barrier to Entry

Bigger markets mean they’re harder to crack. Smaller markets are much easier to manage. They’re easier to learn, easier to start in, and easier to master.

Because properties are going to be less expensive, it means the simple act of purchasing a property is going to be easier. Scaling your portfolio will happen sooner. You’ll be able to experience positive cash flow at a smaller threshold. In general, it’s easier to get started and be successful!

3. Potential for Growth

Because these markets are growing, recovering, and experiencing their own economic revivals (in many cases), the potential for your investments to grow and appreciate is great. If you buy and hold, you could see great returns down the line as the market thrives around you.

4. Portfolio Diversification

When you stop focusing on primary markets, or even just on local markets, you have the opportunity to truly diversify your portfolio. This helps mitigate risk! As you get involved in more markets, hopefully with the aid of a turnkey real estate company, you’ll be able to reap the benefits of exciting, up-and-coming markets without the fear that one market experiencing a downturn will ruin your entire portfolio. Instead, opportunity is wide open. You can enjoy markets that are “hot” or you can seek out more stable, slow-but-steady markets—whatever suits your tastes!

5. Property and Rental Affordability

Affordability isn’t just a plus for you and your ability to buy properties and enter a new market. It’s a plus for your tenants and the market as a whole. Affordability draws in a bigger population, which means more tenants, economic growth, and opportunity.

While secondary housing markets may not have the glamour or prestige of the primary markets, they do have great potential. Don’t underestimate the opportunities right under your fingertips, all of the nation!

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