The Power of Secondary Housing Markets for Real Estate Investors

Posted by Chris Clothier on Wed, Dec 30, 2015

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Investing in real estate, ideally, is about opportunity. Opportunity to get involved in a myriad of markets, opportunity to earn passive income, to save for retirement, to find financial freedom. This idealized image of investing in real estate is alluring in a real American Dream kind of way, but the reality doesn’t always live up to the dream.

For a long time, investors felt the need to keep their eyes only on the hottest, trendiest markets. San Francisco. New York City. Chicago. DC. They have this glamorous appeal that few other places do, and it’s hard to break free from that particular allure.

But really, the greatest opportunities for most real estate investors aren’t in these markets. Slowly, the real estate investment landscape is shifting to favor secondary and even tertiary markets. They may not have the same glamorous appeal, but these diamonds on the rough offer more than their sparkling sister cities.

These markets:

  • Aren’t squeezed for availability. Your average investor still stands a chance in a secondary market. It’s not a mad scramble to snatch up a property the day it goes up.
  • Are reasonable in price growth and projections. Too much fluctuation can be stressful, even if you’re holding to a buy-and-hold strategy. Both decreasing values and too rapid increases can be reason to exercise caution.
  • Are more affordable. We’ve all had sticker-shock looking at the cost of NYC apartments and West Coast townhouses. While the price of rent looks good to investors, the extravagant cost of the properties themselves ends up making it very difficult to start earning a profit. In secondary markets, you can find affordable properties. While your rent income may be lower, you’ll start earning more quickly. 

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When we talk about secondary markets, we’re referring to places like Dallas/Ft. Worth, Houston, Atlanta, Austin, Charlotte, and Seattle, among others. Those markets that are still sizeable, but not trendy in the same way that New York City is.

“Trendiness” however, isn’t really a quantifiable metric. Investors are exploring the freedom in branching out to other real estate markets, not as a second-rate compromise, but as a top-notch strategy. So what should investors look for when investigating opportunities in an out-of-state, secondary market?

Economic Momentum

In places like Houston and Dallas, even amid the oil crisis, the economy is doing quite well. It’s still a top choice for millennials and entrepreneurs. Between downtown revivals, job opportunities, and growing rental demand, these secondary cities are showing promise across the board: not just in their real estate markets.

Especially as the majority of the country is still licking its recession wounds, looking for markets that are accelerating in their overall economic landscape is wise. 

Available Inventory

For investors and homebuyers in hot markets, inventory is always a challenge. When prices are inflated, it’s already difficult, but add in limited inventory? It really squelches opportunity. So the question isn’t necessarily is there enough inventory?, but is homebuilding working to compensate for demand?

In many places, overbuilding was once a problem: but in good secondary markets, new builds are welcome and appropriate. The health of the construction sector directly correlates to the future of the real estate market. 

Good Competition

Another issue that those primary, glamorous markets struggle with is intense competition. Any high-demand market will have it: Houston did, too! You do want competition. If a market has no competition, one has to wonder if it’s worth investing in. Too much competition, on the other hand, means that average investors are bound to be pushed out by all-cash offers at high price points at break-neck speed.

That can be discouraging, where healthy competition can be invigorating.

Manageable Prices

The cost of living is a key factor in a good market. Not only should investors be concerned with property and rental prices, but the overall conditions a market offers to its people. For instance, if the cost of living is disproportionate to wages, one can surmise that the market might not be sustainable and may, in the future, suffer from a lack of affordability—and thus, push people out and away. Affordable markets, on the other hand, are attractive to many. There’s a sweet spot to be found that has healthy growth in both home values and wages.

Listen, real estate investors: you aren’t necessarily looking for the big-ticket properties, especially when you’re just starting out! You’re not going to land a New York City high rise right out of the gate. Turning your attention to a secondary market and selecting properties strategically in a growing region allow you to better mitigate risk and grow your passive income.

We’re not saying go on the cheap: far from it. But we are saying to widen your net when looking for opportunities.

Not Sure Where to Start? Go Turnkey!

For investors looking to out-of-state markets, navigating the nuances and making the right investment decisions can be doubly challenging. That’s why you need a trusted team standing by your side.

We’ve got the experience you need to begin your journey to financial freedom!

Get started now!

image credit: Rachel Elaine

Topics: real estate market