Let's Talk About Types of Markets

Top reasons why I've come to start investing in secondary and tertiary real estate markets

First let’s break down the three levels of real estate markets: primary, secondary, and tertiary.Primary markets are the most common area for real estate investing due to population growth or familiarity with the region. A large economic base from a wide range of industries supports the area, leading to expansion and development. We are familiar with the traditional primary markets of New York, Chicago, LA, and Houston that fall into that category. Newer markets that are also in this primary category are Atlanta, Charlotte, Dallas, Austin, and Nashville. These markets are competitive and often lead to market speculation that can add an element of risk to investments.Secondary markets are defined as the communities surrounding the primary markets. Located in suburbs or outskirts, they are dependent on the larger population and industries of the primary market. For example, the secondary markets of Leander, Georgetown, and San Marcos can be found outside of the primary market of Austin, Texas. In the Dallas area, McKinney, Fort Worth and Denton are considered secondary markets. Another example is the relationship of Connecticut to the dominant market of New York. The secondary market provides affordable economic residences, community, and transportation means to the larger markets.Tertiary markets are those markets that aren't necessarily directly tied to the economies of the primary or secondary. These markets have a smaller population, wouldn’t be on anyone’s “sexy” list and have not experienced the vast growth that creates primary and secondary markets. Tertiary markets have independent economic bases due to local industry or institutions. Examples of this tier are Evansville, Indiana, Elizabethtown, Kentucky or Knoxville, Tennessee.Why Tertiary MarketsWealth Builders Investments recent purchase of a 112 unit apartment property is an example of an investment in an established tertiary market. Investments such as this fit into our investment model due to lower competition and the ability to stay anchored to our mission of improving communities.We are generally able to avoid the elements of competition and market speculation commonly found in the larger markets. As we seek investments that show the growth of wealth over a long period of time, we seek out well maintained properties with a strong tenant base. Our research shows that steady economic activity as opposed to quick expansion allows builders to service the existing properties of the marketplaces rather than builders creating new housing developments.When our tenant base is more established and less transitory, we can develop long-term relationships with the individuals in our properties which has shown to decrease vacancies. We have the ability to make a more substantial impact on improving the community where the population is smaller and interact with city officials about the changes they're searching for, and really help the community and what they're trying to accomplish.Lastly, tertiary markets are more stabilized marketplaces, a factor we feel is important in the current climate of inflation. We can avoid the “shiny object” syndrome that creates the competition of a primary market where everyone bets on the current boom to generate fast returns. The tertiary market allows us to invest for a longer hold period in a good solid investment with considerable upturn.As I have walked the communities of new secondary and tertiary markets, I am eager to continue to expand our portfolio. Look for more insight on how to approach investments in a tertiary market in our next blog post and please don’t hesitate to reach out with any questions.