Buying apartments in the 3 market types
There are 3 markets in which you could invest in. Your strategy in most cases will determine the outcome in each one of these markets.
Its also important to note that your strategy wont usually work in all 3 market types.
The 3 market types are primary markets, secondary markets, and tertiary markets.
Below are details about buying apartments in each market.
The primary market is the flashy market. These are the big cities that are flashed across TV screens in America.
These cities include the likes of Miami, New York City, Los Angeles, Houston and so on. These are major metro areas that usually have billions in foreign money pouring into the market.
When buying apartments in primary markets, you can expect a lot of institutional capital buying large apartment complexes. As i’ve stated before, they aren’t there to add value, they are there to preserve capital.
The problem with a combination of foreign money and institutional capital buying these large assets is it usually drives the prices of these assets up to unreasonable prices.
So when it comes to purchasing assets from these institutional companies, the numbers rarely makes sense due to the fact that the asking prices usually doesn’t reflect its true value based on income generated.
The bright side of primary markets is this is usually were the majority of jobs and major hospitals are.
The major take away here is that at least in todays climate, cash flowing in these major metro types are extremely hard. But just like anything else, there are stipulations.
Secondary markets are smaller markets right outside of major metro areas. So for instance, if Fort Lauderdale is the primary market, Deerfield Beach may be the secondary market. If Tampa is the primary market, Brandon may be the secondary market.
Buying apartments in secondary markets are the sweet spot for value add investors right now. Secondary markets are close enough were employees are able to commute, and live were rents are affordable.
When it comes to institutional investors, they aren’t usually found in secondary markets, but this isn’t to say that they aren’t at all. Secondary markets also have a smaller employer base. Its incredibly important to vet the stability of jobs and the variety of jobs. You don’t want one or even two industries dominating a secondary market. If those employers were to pull their company and relocate elsewhere, that would effect your rental property.
There are usually large amounts of cash flow to be found in secondary markets. This is due to older properties being renovated to increasing its value.
Building in secondary markets are usually lower also. So this also lowers the competition.
Tertiary markets are markets outside the skirts of secondary markets. As you can see, the further and further you venture away from the primary market, the less population there is.
As i’ve stated previously, buying apartments follows jobs and population growth. Out of all 3 market types, tertiary markets can be the riskiest because of this.
Tertiary markets usually have one or two main employers. What makes this risky is the threat that one or both of those employers moving out. If that happens, those jobs and tenants go with them.
Theres a lot less building also in tertiary markets. If there is any at all.
The job commute to primary markets are usually long. So this is a factor also when buying apartments in tertiary markets.
You must understand these markets in order to make the best decision possible when buying apartments. Values in each market are different. Jobs are different. Commute times are different. You must understand a host of things in a market prior to even purchasing a property.
For my company Elite Capital Partners, we focus on secondary markets. Theres less competition with large institutions and REITs. We want markets were there is less building. Secondary markets provide that. And they are populated enough to hold rental values at a peak.
As you analyze your market, ask yourself what are the benefits and risks associated with you market before buying apartments.