When we think about real estate investment, and more importantly, success in real estate investment, we have to think about who we are serving as investors and management teams. That comes down to our renters.
For the inexperienced investor, it can be all-too-easy to believe that investing in real estate is as easy as buying a property in whatever market you happen to be in and renting it out regardless of the rental demand in your area.
However, we at Memphis Invest, in our over fifteen years of experience, know the value of a good market. We have grown our business from the Southern city of Memphis, Tennessee to include the metropolitan titans of Dallas and Houston, and secondary markets like Oklahoma City, St. Louis, Tulsa, and Little Rock.
When we expand into one of these markets, we don't pick it just because the properties are there—we have an intensive vetting process that determines which markets will provide sustainable investment opportunities for our investors for years to come.
When we think about investment sustainability, there are many key factors in that conversation that we have discussed frequently on our blog.
However, one element worth discussing is a Forbes’ Key Residential Real Estate Trend to Watch in 2019.
That element is renter migration.
2 Facts About Renter Migration and Real Estate Investment in 2019
Opportunities and Affordability Drive Renter Migration
According to the Forbes list, renter migration is expected to increase in 2019 as millennials, Gen Z, and Baby Boomers (those who compose the biggest shares of renters) make moves to secondary markets. Why secondary real estate markets over the attractive Silicon Valley area, or New York City?
Instead, renters are heading to Denver, Nashville, Houston, and other mid-sized cities in markets across the United States. Many of these secondary markets fall into the same categories that our investment markets at Memphis Invest do. But what’s causing this migration to markets that once were not on renter radar?
In short, it comes down to job opportunities and affordability. Renters and homeowners aren’t the only ones looking for affordability. Businesses, too, have been on the move and settling into secondary markets to take advantage of low operating and property costs, as well as tax incentives.
Because of this, renters, particularly in the millennial and Gen Z demographic, are finding that they can capitalize on lucrative job opportunities as well as cheaper living in secondary markets—where even tech industry jobs are growing and available.
Primary Markets Are Stagnating
When we compare primary markets and secondary markets, we’re seeing a shift in renter priorities. Secondary markets, which are far less crowded and more financially forgiving, may not offer the swath of attractions and the prestige of a primary market, but they have sustainability for both residents and businesses.
This lends an opportunity to set down roots and thrive across the board.
We see from reports that rent is stagnating in primary markets. This is largely because renters are inevitably priced out of them. Renters compete for affordable housing and housing in their specific price range, and a nationwide shortage of such housing results in the stagnation of primary markets and the subsequent migration to secondary markets.
We’ve spoken before about the fact that even though new construction is on the rise in the rental sector, it is so often in the luxury price range, so it does little to alleviate the affordable housing dilemma. This is because builders feel as though they must build luxury in order to profit, but this has also lead to an oversaturation of luxury properties (and thus, stagnation and high competition among sellers and providers) in many markets, like Seattle.
As a result, renters look elsewhere, where their dollar goes further. In secondary markets, what they pay in a primary market could buy much more space, nicer amenities, or a better spot in a better location.
Because job opportunities are growing, there are no drawbacks to the move, either.
Ultimately, in 2019, expect to see continued growth in secondary and even tertiary markets. As our world continues to connect digitally and the barriers of geography break down, job opportunities will continue to grow in markets we would least expect. This means that opportunities for real estate investors will grow nationwide, especially in these secondary markets.
These are ones to watch!
Starting building a lasting passive real estate portfolio in up-and-coming investment markets with Memphis Invest. Talk to your adviser today.