What are Tertiary Markets and Why are They Important?

Updated: Oct 23, 2020

Chances are, if you landed on our home page, you are curious about real estate investing, but may be looking for a more innovative and strategic option. Not sure where to start? Let us introduce you to tertiary markets, then we’ll let you know why these should be an integral part of your real estate portfolio.

Although location does matter, it’s not necessarily the most important part of real estate as the saying, “location, location, location” goes. There is money to be made in real estate well outside of primary markets, and even outside of secondary markets. Quick refresher: Most experts agree, based on population, that primary markets are typically considered those with populations of 5 million or greater and secondary markets possess populations of greater than 2 million and less than 5 million. So based on that, tertiary markets are those with populations less than 2 million. However, markets cannot be segmented based on population alone. Austin, TX has a population of less than 1 million, but most would agree that it does not fall into the camp of tertiary.

Other factors, such as: population, job growth, traditional and alternative economic drivers, and cap rate analysis need to be considered as well. In addition to smaller populations, tertiary markets tend to have higher growth rates in both population and employment. “I believe a tertiary market has steady but controlled job growth, population under one million people and a combination of traditional and alternative economic drivers,” says Drew Dolan of Forbes.

Real estate investment definitely should not be limited to the bigger, sexier primary markets. This was certainly the case in the past, but real estate investing has gotten smarter. There are still huge companies that only own properties in primary markets, but what if you don’t have that kind of clout? Maybe you don’t want to deal with the extra competition of primary and secondary markets. Or if you’re just keen to the fact that tertiary markets can offer better deals and higher returns. As the population of Texas continues to grow more quickly than most other states, the need for new housing, entertainment, stores, restaurants, office and other types of building’s need to be constructed will grow as well. Investments can be made in these properties for much less than primary and secondary markets, but oftentimes tertiary markets’ rental rates will rise faster than the U.S. average; thus, the potential for real estate investors to yield higher returns.

When you’re looking for potential tertiary market investment opportunities, but sure to consider if it has: healthy employment growth, higher-than-average population growth, strong rent growth and developed infrastructure. Other things to be mindful of are: low taxes, low property values, ample amenities, good schools and even pleasant weather.

The hope is that the tertiary market has the potential to turn into a secondary market (Denver, Austin, etc.). The great news is they can offer the possibility of more upside for investors, higher growth and higher cap rates. Why Invest In Tertiary Market Real Estate?

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