We’ve all heard the saying “Location, Location, Location” when it comes to what matters in real estate.
For some investors this can apply to areas as broad as a region of the country (Midwest, West, Southeast, Northeast, etc.), certain states or cities, or even specific submarkets or neighborhoods.
But how do investors set their geographical criteria?
For some, they like a particular market because they know it well—they either live there or visit it frequently and understand the dynamics at play. Others seek out markets that have similar socioeconomic drivers and stick with them.
Some may prefer to invest in markets with milder weather to minimize certain risks, and still others look strategically at different geographical regions to see where they can get the highest return on their investment.
There has been a big push toward urban centers over the past several years, which is where real estate has been the hottest and prices have risen dramatically due to increased demand—think the six primary markets, which are defined as having more than 5 million residents: New York City, San Francisco, Washington D.C, Chicago, Los Angeles, and Boston.
Related: What is Good Cash on Return for Real Estate Investing?
That said, as primary markets became oversaturated with would-be buyers and returns on real estate investments have diminished in certain submarkets, investors have looked more toward secondary markets, which house between 2 million and 5 million people, for better yield.
Some secondary markets that investors are watching include Austin; Charlotte, NC; Denver; Charleston, SC; Nashville; Portland, OR; and Raleigh, NC.
As the secondary markets have grown in popularity, investors have continued their search for yield in tertiary markets, which contain less than 2 million people, such as Lexington, KY; Philadelphia; and Albuquerque.
The trick for many investors is finding deals in markets where their properties will continue to grow in value, due to factors including rising job and population growth and high quality-of-life scores, so educating yourself with market data and understanding the real estate cycles in specific markets are essential before making a geographical investment choice.