emerging investor markets is the focus of this guide for passive real estate investors. First, it highlights the main idea behind the topic. It also outlines the risks and questions worth reviewing. As a result, you can approach the discussion with a clearer framework.
What to know about emerging investor markets
A few months ago, I wrote about the ability to adapt to the ever-changing real estate and investment landscape. Whether it is changing interest rates, compressing cap rates, population shifts, housing inventory reduction, or a plethora of other factors, we at PassiveInvesting.com are always paying attention to what is happening and adapting to bring the best investments we can to you, our investor. We never simply rely on past success but strive for innovation and ingenuity within the real estate investment world.
This can cause issues with our messaging. We make statements based on the market indicators at the time. However, as mentioned, these indicators are always changing. This may shift a position we once held to a new one. For instance, when we first started looking at multifamily properties, we were looking for heavy value-add, 70s & 80s vintage products. At that time, it made sense and the returns were stable. As the markets progressed and COVID-19 came, we realized a vulnerability in the older value-add space and changed our position to look for newer assets with less inherent risk. We have also realized that those newer, more desirable assets were available at higher cap rates than the value-add deals we once sought after. We shifted our focus and acquired accordingly.
What this means for investors
Recently, we have noticed that with the shift away from value-add properties by us and other investment groups, value-add properties have begun a little resurgence. We are finding more and more value-add deals that are now projecting good returns and since the focus was away from them, they are easier to acquire with less competition. The same holds true for individual markets. We started out with a focus on Charlotte, Raleigh, Charleston, Atlanta, and Greenville. Since then, we have added Jacksonville, Tampa, Orlando, San Antonio, Houston, Austin, and Dallas/Fort Worth. We have pulled focus away from Raleigh, Atlanta, and Austin simply because of the competition and the highly compressed cap rates.
Those markets are so much in the news that every investor in the space is trying to buy deals in them. With that kind of competition, you come across groups that do not know how to underwrite deals properly or they end up bidding deals over market prices; therefore, rendering them less than ideal for the PassiveInvesting.com family of investors. This is great for the assets that we own in those markets because it drives up the rental rates and per door basis and thereby accelerating our business plans years ahead of schedule. These market demands may change; no, they WILL change, and we will be there when they do to find the overlooked diamond in the rough in each market.
Questions to ask before acting
If markets that were once very desirable to us are now overpriced and over-competitive, then the same holds true for markets that we once passed over. Many times, when we pass over a market, it is not because it is a bad market but because we must maintain our focus on the best markets. We cannot seek properties in every market in the US and be effective. However, when we decide to shift away from competitive markets like Atlanta, Raleigh, and Austin, then we look for alternative markets that, at one point, we may have stated we would not buy in. We have found that some of these markets have performed well and have less attention in the media and, therefore, have less competition, a lower per door basis, and higher cap rates. Fewer barriers to entry mean higher returns for investors. Here are two examples of such markets.
Huntsville, Alabama: Huntsville is in the Tennessee River Valley in the northernmost part of Alabama. It’s the fourth largest city in Alabama and part of the second most populated metropolitan area in the state. The economy of Huntsville is driven by a mix of private and public industry sectors, such as aerospace, defense, technology, and education. The gross domestic product (GDP) of Huntsville Metropolitan Statistical Area (MSA) is nearly $29.5 billion and has grown by nearly 44% over the last 10 years, according to the Federal Reserve Bank of St. Louis. The population of Huntsville has grown by 1.6% over the past year and by nearly 11% since 2010. Within the next five years, Huntsville is projected to overtake Birmingham as Alabama’s largest city. Developers in the Huntsville metro area simply haven’t been able to keep up with demand. A low supply of housing helps to explain why rental rates in the city grew by 9% last year and why one major financial publication ranks Huntsville among the top seven smaller towns worth investing in.
Risks and tradeoffs to review
Savannah, Georgia: Savannah, Georgia is located along the Savannah River, about 20 minutes from the Atlantic Ocean and three and a half hours by car from Atlanta. Originally founded as a British colony in the early 1700s, the city was a key port during the American Revolution and Civil War. The city of Savannah is home to more than 145,000 people and nearly 400,000 in the Savannah metro area. Savannah is the fifth largest city in Georgia and the third largest MSA in the state. Over the past 10 years, the Savannah metropolitan area has added nearly 100,000 new residents. In the next five years, the city of Savannah is forecast to gain about 6,000 new residents and about 12,000 new residents by 2030. The GDP of the Savannah MSA is more than $22 billion and has grown by over 59% during the last 10 years, according to the Federal Reserve Bank of St. Louis. The largest manufacturing employers in the Savannah area include Gulfstream Aerospace Corporation, chemical company SNF, Georgia-Pacific Savannah River Mill, and International Paper.
On top of Savannah and Huntsville, you have markets like Columbia, SC; Wilmington, NC; Myrtle Beach, SC; Boise, ID; Tucson, AZ; Augusta, GA; and Tempe, AZ, to name a few. We are always researching, and we always have our finger on the pulse of our target markets while monitoring those that are springing to life. As our team works tirelessly to bring you the next investment opportunity, be on the lookout for some of these new markets!
Key takeaways for emerging investor markets
- Start with the goal and timeline that fit your wider financial plan.
- Next, review the assumptions, risks, fees, and possible outcomes.
- Finally, compare the opportunity with other ways to use your capital.
Put emerging investor markets in context
Core ideas for emerging investor markets
Every investment decision depends on the investor, the deal, and the market. Therefore, use the ideas above as a starting point for deeper due diligence. Review source documents, ask direct questions, and seek qualified advice when needed. For more guidance, explore our passive real estate investing education.
A clear review of emerging investor markets
emerging investor markets deserves a clear and practical review. These short checks can support a more informed decision.
- Start with a clear goal.
- Next, define the time horizon.
- Review each key assumption.
- Compare the likely outcomes.
- Test a less favorable case.
- Ask who controls each decision.
- Confirm the fees and incentives.
- Study the market and the deal.
- Check the supporting documents.
- Look for clear communication.
- Compare other choices.
- Keep the full plan in view.
- Write down the main risks.
- Review the source of returns.
- Check the exit assumptions.
- Understand the tax questions.
- Consider the need for liquidity.
- Match the choice to your goals.
- Ask direct follow-up questions.
- Confirm the reporting process.
- Review the operating plan.
- Check the team’s experience.
- Compare the best and worst cases.
- Keep expectations realistic.
- Use qualified advice when needed.
- Document the final decision.
- Review the decision over time.
- Watch for changing conditions.
- Stay focused on the long term.
- Finally, act with a clear reason.
A practical review of Emerging Investor Markets
First, define the goal for this decision. Next, write down the result you expect. Then, identify the facts that support that result. Finally, note any facts that could change your view.
For example, compare the likely return with the main risks. In addition, check the timeline and the amount of control you will have. However, do not rely on one attractive number. Instead, review the assumptions behind every estimate.
Before you act, ask who will manage the work. Also, confirm how that team will report progress. If conditions change, decide how the plan can adapt. As a result, you can judge the opportunity with more confidence.
Moreover, compare this choice with realistic alternatives. For instance, consider liquidity, taxes, fees, and timing. Likewise, review the downside as closely as the upside. Therefore, your final decision can reflect both your goals and your limits.
In short, use a clear process. First, gather the facts. Next, test the plan. Then, ask direct questions. Finally, choose only when the answers support your strategy.