Investors Considering Secondary Markets For Their Next Real Estate Investment
One of the trends for 2018 identified in the PWC Emerging Trends Report for 2018 is that homeowners and investors are now considering places they have not previously: secondary markets. These are areas with lower, more affordable pricing, both for owner occupants as well as investors looking to park their money in a real estate vehicle. Secondary markets are places where people would probably not have chosen to live had their first choice been more affordable.
It’s interesting to consider that ten years later, the real estate markets and the economy are still affected by the crisis. The economic realities for many Americans following the 2008 financial crisis and ensuing recession have changed. Americans are making different choices now based on a new perspective and set of priorities and fears. The current economic climate has pushed households to target secondary markets as a means of cutting costs and dealing with greater economic uncertainty and insecurity.
The PWC trends report says that secondary markets may become even more important in the future. That’s because slow growth means that renters will likely struggle to keep up with price increases, which in turns puts pressure on landlords to keep costs low to maintain profitability. In other words, slower economic growth will limit investors’ ability to raise prices to maintain or increase profits; profitability would be shifted to keeping costs low, or affordable.
In addition to more affordable living costs, many of the secondary markets offer the same attractions and amenities as the primary markets, but cheaper. Although the PWC report predicts that Millennials will stay in the urban areas because of costs, many are expected to move to suburban areas when they start a family – but the suburbs won’t be in the same metro area where they live – but in another location entirely.
According to firm IHS Markit, quoted in the PWC report, the average cost of doing business is 16% lower in secondary markets. Energy costs are lower too, by about 22%, and real estate costs a whopping 38% lower, and labor costs are about 14% lower.
All of this data adds up to making secondary markets much more attractive to consumers and investors. The economic reality in the United States means many people will be looking in places previously unconsidered for their purchase choices. It should be interesting to watch how this trend interfaces with and affects the overall migration toward cities and urban living we have seen in Millennials more generally.
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© Gormley Law Office 2018
Brian Gormley, Esq. is an attorney licensed in Maryland and the District of Columbia specializing in real estate, probate, estate litigation and other matters. If you need assistance, please use the Contact Feature at the bottom of this page.