Investing in Secondary and Tertiary Apartment Markets: What you MUST know

As primary “A” type multifamily markets tighten, there are more and more prospective tenants pushing into the secondary and tertiary markets, creating huge opportunity. However, there are fundamentals that can make or break your investment strategy; properly preparing can make the difference. If you drill down and really master the sub-market research, you will find off-market opportunities!


A quick tip on Broker Relationships - In smaller markets,  there are often a handful of brokers that have the listings. Once you establish a relationship with them, be clear about what kind of deal you’re focusing on, and be ready to pull the trigger when he comes send you a deal that fits all of your requirements. Don’t waste their time.


Macro Market Research

DON’T jump on a plane because you’ve started to focus on one market. In this digital age, you can do much of the preliminary research online.

Employment – is there one large employer? Be wary of one sole employer changing the rental market. However, when we were investigating Charleston, SC as a market, Boeing put $1 Billion into infrastructure at the Charleston facility. This not only creates demand for employees, but the ancillary employment that comes to support the additional Boeing employees.

Population trends – it doesn’t always need to be skyrocketing! For example Cincinnati, OH does not have staggering population growth, but it IS steady. Their unemployment is among the lowest in the nation.

Market Size - It is a large enough market? Our population marker is at least 200,000 at the county level. Any smaller and there is a question of keeping your units filled.


Micro or Submarket knowledge

A lot of research can be done remotely. However, eventually you really will need to BE in your sub-market to immerse yourself and understand the subtleties of the neighborhood.

Path of Progress – are you on the right side of it? Make sure as the primary markets push out, that you are not on the wrong side of the growth.

Be conservative in terms of market rent growth. We don’t budget more than 2% per year in our analysis.

What type of retail is in a 2 mile radius of your property? Is there a new Kroger or even better a Whole Foods? A good way to check that you ARE in the path of progress is check the level of retail. It’s more than Starbucks!


Strong Property Management

Investing out of state requires your property manager to be an active part of your team.

We involve our Property Manager early and often; they have the micro-market knowledge and can perform initial walk-throughs of properties.

Property Management is essential to any value play; are they prepared to manage the rehab or do they need to sub out the work?


As with any multifamily purchase, make sure that you have several clear exit plans. Don’t assume that refinancing is the only option. Make sure that you have several contingency plans in place.


I’m not saying it’s not a lot of work. However, the more front-end work you do, the smoother the property will run, bringing cash flow and equity with it.

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