October 28, 2019
With the cost of real estate soaring in major markets like New York and Los Angeles, more and more investors are beginning to search for value in smaller markets that are on the rise.
The growing appeal of these markets, many of them in the southeastern United States, reflects patterns of migration seen in the economy more broadly.
Writing for Forbes, Don Wenner outlines the reasons why investors should follow these trends to secondary markets that might not have been as appealing a decade ago:
"The bigger Southern cities such as Atlanta, Charlotte and Tampa have long welcomed a steady influx of newcomers, but they are no longer alone. As housing prices in those metropolitan areas have risen, more affordable secondary markets in the Southeast have become the latest magnets for new arrivals in search of a better quality of life. People are flocking to the likes of Spartanburg, South Carolina; Greensboro, North Carolina; Little Rock, Arkansas; Brunswick, Georgia; and Jacksonville, Titusville and Palm Coast, Florida." --Don Wenner
Wenner explains that investors should pay attention to where Millennials are establishing footholds in greater numbers.
While the availability of more affordable properties isn’t a good reason on its own to invest somewhere, other indicators provide the information an investor needs to evaluate the long-term potential of a property.
The biggest factor to look at is job growth in the surrounding area. As more companies grow and relocate to up-and-coming locations. If the area is primarily led by one or two industries, that introduces greater risk into the investment in the event of companies exiting or downsizing.
Another factor to consider is cap rate compression, or hitting the market too late and crunching the rate of return as housing prices increase across the board.
“The most value today is in areas where growth is still trending upward, rather than those that are close to or have already peaked,” Wenner wrote.
Finally, Wenner recommends taking a deliberative approach and doing your homework on an area with caution. Real estate investments often take a while to pay off and require a clear strategy based on the surrounding market. There is always risk involved, but secondary markets are proving to be a valuable place to invest as they show signs of growth.