As an agent, you’ve probably realized that investors who are putting money into rental properties often like to stick with the bigger markets, and they have some good reasons for this decision.
In today’s real estate landscape, a good growth market offers the opportunity to realize growth as rents can increase and the value of the property rises. According to a recent Forbes report, big markets also have a waiting pool of buyers when investors are ready to sell.
Investors in rental property often stick to the big markets, and there are a lot of good reasons to do so. For one, if you’ve picked a good growth market you can quickly see an increase in both the rent you can charge and in the value of the property you bought. For another, in big markets there are enough buyers so you can easily sell out when you feel like it. And third, in big markets you’ll find a whole rental management infrastructure, so you aren’t limited to investing in your home town.
A key trend today, however, sees investors migrating to some smaller communities as millennials express less interest in property acquisition and more people are being priced out of gentrified urban centers. This can make investment in rental property in small-town markets an better option with higher long-term returns with less volatility.
The primary and gateway markets include New York, Washington, D.C., Chicago, Boston, Los Angeles, San Francisco, and secondary cities such as Denver, Houston and Atlanta. These areas are seeing capitalization rates on acquisitions and overall returns decline, driven by a combination of historically low interest rates and demand from well capitalized investors looking for good investments.
These factors also are driving investors to smaller communities. Agents can also get into this opportunity. It can require more patience and a stronger interest in long-term gain. But with a smaller initial budget you can start building a real estate empire.
In recent years, reports by the Urban Land Institute and H.S. Dent Publishing have offered a case for a demographic shift that could impact real estate investment. About 20 percent of the North American population, approximately 70 million people, will migrate from the larger metropolitan areas of the country to exurban areas, small towns and new growth cities in the next three decades due to better communications technology and the search for a better lifestyle.
As an agent, you can position your business for growth by knowing the best areas to serve as solid alternatives for your investment clients. These areas will be small towns that have unique amenities, such as resort and college towns, emerging new cities whose economies are supported by new technology and medical industries, and exurbs, the cities growing up around some of the key gateway cities.
These types of communities are projected to see the most growth over the next 25 years, and could offer the best opportunity for real estate investors looking for higher yields with strong upside potential.
