When many people think of finding success in the world of real estate investing, they envision buying up properties in major metropolitans like New York, Chicago, and Los Angeles. While these large cities, known as “primary markets,” certainly offer lucrative returns on investments, there is plenty of success to be found in secondary markets like Detroit. Whether you’re new to the world of real estate investing or want to diversify your portfolio by dipping into a new market, there are plenty of great reasons to choose a secondary market. Here’s a look at six benefits of investing in secondary real estate markets.
Less Competition
Primary markets like New York and Los Angeles are certainly lucrative areas for investors. However, they’re also incredibly competitive. When you’re looking at properties in those areas, you should assume that you’re one of dozens of investors who want to purchase the property. In addition to private investors, there are REITs and syndicates who work in those larger markets so they can offer a more appealing portfolio to their investors.
Secondary markets, while still competitive, aren’t as full as primary markets. For instance, if you start looking at a single-family home in Los Angeles, there could be 20 other private investors along with REITs and syndications looking at the same home. In a secondary market, like Detroit, you may be one of 10 investors interested in the property. Less competition doesn’t mean that there’s not a market for these properties on the rental market. Instead, it makes it easier for you to grab a property that can generate a profit.
Lower Up-Front Costs
As a real estate investor, you want to get the most out of every dollar you spend. While that certainly impacts the way that you manage properties after you own them, it should also be an important part of your property-screening process. The median listing price of a three-bedroom home in New York, New York is around $843,000. Conversely, Detroit’s median listing price for a three-bedroom home is around $85,000. That means that you could buy nearly 10 Detroit properties for the price of a single New York property that’s comparable in size and layout.
If you’re new to real estate investing, you’re probably not looking to buy 10 properties, and you probably don’t have hundreds of thousands of dollars to invest. With this in mind, the lower up-front costs associated with a secondary market are wonderful news for you. When you spend less on a property upfront, you’ll start seeing a profit from it sooner rather than later.
Higher Rate of Return
Many investors, especially new ones, assume that they have to invest in primary markets to see a significant return on investment (ROI). That’s a dangerous myth that leads to a lot of failure among real estate investors. In fact, you can actually find a better return on properties in a secondary market than you’ll find in primary markets.
This is because, in addition to the price you pay for the property, there are other costs associated with owning the property. Places like New York and Los Angeles are expensive places to own property. When you buy a more affordable property, you have the potential to make more money every month. Many industry experts agree that a property should generate at least 1% of its sell price every month in rent. You’re much more likely to find a property that does this in a secondary market.
Decreased Volatility
Even if you weren’t investing in real estate during the housing market crisis of 2008, you’ve probably heard horror stories about the market completely falling apart. While the ramifications were felt across the country, primary markets were hit harder than their secondary counterparts. This decreased volatility wasn’t only true in 2008. In fact, it’s one of the most popular reasons that investors continue to choose secondary markets.
The real estate market is constantly changing and evolving. Some years are simply better than others. While that’s an unavoidable aspect of real estate investing, you can protect yourself against the harshest aspects of a market downturn by choosing a secondary market. Larger cities get hit harder during recessions and depressions. Secondary markets feel the effects, but not as strongly.
Greater Growth Potential
As a real estate investor, you want your portfolio to grow over time. Secondary markets offer great growth potential. Primary markets typically come with a higher cost of living, which dramatically alters the rental market. Conversely, secondary markets, with their lower cost of living, are attractive to potential tenants. This is why secondary markets can become primary markets, driving up property values, and leading to increased profits for real estate investors.
Treat your Detroit real estate investing like a business. When starting a retail business, you may not be able to start with a huge store that offers a wide array of products, starting small allows you to build up to that. The same can be said for investing in real estate. Smaller markets become bigger markets, and responsible investors help facilitate that change. They also benefit from it.
A Chance to Learn
The chance to learn about investing while investing is especially important if you’re new to owning Detroit rental properties. Even the most seasoned investors make some mistakes along the way. If you’re new to real estate investing, honing your craft on a more affordable property is always the right option. When you invest in more expensive properties, you don’t have as much leeway when it comes to making the mistakes that everyone makes. Secondary markets are a great opportunity for you to learn what works and what doesn’t, setting yourself up for long-term success.
Detroit Provides a Great Opportunity for Investors
Secondary markets like Detroit offer a number of benefits to real estate investors. With that in mind, it’s important to work with a team of industry professionals who know the market and have the tools in place to help you succeed. Contact the team at Upside Investments today to find out more about how we can help you invest in Detroit.
Nader Shariff, from Upside Investments, says “when venturing into international or interstate investments requires a comprehensive understanding of the market terrain. Remember, no investment strategy is entirely infallible or offers absolute assurance. Each investment proposition carries its own degree of risk, which you need to comprehend and comfortably accept before making a commitment. If any part of the market outlook remains obscured by your investment partner, it would be prudent to reconsider your involvement.”
