How often do you hear, ‘The market is unpredictable’? Probably more times than you can count. It’s true, and it's partly why emerging markets can vary from one quarter to the next. But, staying abreast of the market is key to keeping up with the trends.
As of Q2 in 2023, Charlotte, Columbus, and Milwaukee markets are forecasted to be among the emerging markets, ‘bucking the trend of slow growth’, that has been trending.
Real estate is thriving in many areas, so what exactly differentiates one market from the other in terms of being a ‘hot market’ and an ‘emerging market’? Generally, when referring to a hot market, it's an area that has been experiencing ongoing traction regarding moving housing units on and off the market at a consistent pace and may be more established. An emerging market refers to cities that are experiencing substantial economic growth and development that in turn, triggers a climactic demand for real estate.
These areas tend to be an opportunity for real estate investors to expand their portfolios through diversification and increase their profits.
The opportunity to grow and increase earnings are two of the most common reasons investors should consider emerging markets. But, while they are two of the most common, they are not the only ones. Other reasons that emerging markets may be considered attractive include:
Potential for higher returns: This one is a biggie. Lower property price points are typically a mark of emerging markets. So, whether you are looking to fix and flip or buy and hold, there is potential for a higher return on the investment as the property prices increase over time.
Growing demand: Another mark of emerging markets is a population surplus, typically connected to economic growth and improvements such as increased employment opportunities. The growing population leads to a demand for more housing, meaning increased urbanization and property value.
Diversification: Consider this the stabilizer. An investment portfolio requires diversification. Relying on multiple market types (emerging and established) is beneficial for a more diverse portfolio.
While there are numerous benefits to investing in emerging markets, understanding the potential risks is critical. Investing, overall, should be done with responsibility and strategy. The same applies when investing in an emerging market. Unlike established markets, emerging markets come with potential concerns that can arise later.
Concerns include political instability, regulatory changes, and the lack of established infrastructure, all things that do not generally present themselves in an emerging market, as they are typically unpredictable yet impactful. It is significant for investors considering emerging markets to do a thorough analysis and partner with a local market expert who can advise based on the trends and current and upcoming changes in the city.
Interestingly enough, the same factors that make the emerging markets a winning choice, are those that you would look to when determining cities that have the potential to be among those markets coming out to the forefront.
Lower housing prices: This is one of the biggest factors. Emerging markets are cities that have affordability. This has been one of the primary reasons that the South has had numerous cities among the top percent of emerging markets. Marietta, (metro Atlanta), for example, is known for its affordable housing market, so it was no surprise that NAR named it as a leading market predicted to be among the emerging cities in 2023.
Real Estate Market Dynamics: Supply and demand is a contributing factor. Lower housing inventory combined with low rental vacancy yet rising home costs and rental rates points to a city moving into a hot market.
All types of investment require strategy, and real estate investments are not exempt. Real estate investing can come in multiple forms, and typically any of them can be an available card to play in an emerging market. Example: If an investor is looking to get into the market, make a few moves, and get right back out, they may find that the best route would be to invest in properties to flip. Or perhaps an investor sees the market as an ideal spot to wait it out with a long-term investment. Either way, recognizing and weighing the different strategies against individual business goals is the best approach for the most viable outcome.
Common real estate investment strategies include:
Property Flipping: Flipping properties yield short-term income, but it can be a lucrative avenue to add experience to your portfolio, increase your profits for the opportunity to continue the cycle or invest in a more stable manner like long-term real estate properties.
Buy and Hold: Purchase in an emerging market, but instead of getting in to get out, this strategy requires you to hold on to the asset. It can be used as a long-term rental, housing one tenant at a time for extended periods, commonly one year lease period. It can also be a short-term rental asset, such as a vacation rental. The property’s value will appreciate over time in line with the market’s growth, but in the meantime create a passive income stream for the investor.
New Development: This can be huge in an emerging market. New Development purchases are funded by a single investor or a syndicate of investors. They pool their capital together to invest in the asset. New constructions are generally large multifamily projects or commercial projects, but they can be beneficial in an emerging market by providing housing or office spaces to accommodate the growing population/economy.
Real Estate Investment Trusts (REITs): REITs are investment vehicles that as well have a place in emerging markets and an ideal strategy that allows investors to diversify their portfolio and take advantage of the emerging markets through a more hands-off approach.
It is vital to point out that each strategy has its independent set of benefits and risks. Before diving into any one (or two) strategies, it's ideal to connect with a real estate expert who understands the strategy and can help determine the best approach according to specific investment goals.
Are you looking to identify and take advantage of emerging markets? National Real Estate Management Group can help you identify your real estate investment goals and the emerging real estate market that can help shift the tides of business and ensure that the absolute best option is available. Contact us to discuss your goals and effective real estate investment strategies that can grow your portfolio.