Why emerging real estate markets attract investors and why identifying them early can create outsized opportunities.
What Is an Emerging Real Estate Market?
An emerging real estate market is a geographic area experiencing early-stage economic, demographic, and infrastructure growth. This growth begins to drive increased demand for residential, commercial, or mixed-use properties, but real estate prices and development levels have not yet fully adjusted to reflect the higher demand.
Emerging Markets vs. “Hot” Markets
In an emerging market, pricing is relatively affordable, and investor awareness is still limited. Hot markets, on the other hand, are already widely recognized by investors, and prices have risen substantially over a short period to reflect the buyer competition.
Emerging markets are defined by what may happen next, while hot markets are defined by what is happening right now.
Key Indicators of an Emerging Real Estate Market
The following factors strongly indicate that a real estate market is in the emerging stage:
- Population growth. Increased migration to the area means more people who will need housing.
- Employment expansion. New employers, industry diversification, wage growth, and job creation give workers a reason to move to the area.
- Infrastructure and public investment. Transportation projects, new schools, improved healthcare options, local beautification projects, and more public-private partnerships show that the community is committed to improving.
- Affordability relative to nearby markets. Lower housing costs compared to neighboring cities or communities incentivize people to relocate to the area.
- A sudden pick-up in investor and developer activity. A sudden increase in land acquisition, rehab projects, and new developments shows that investors are starting to see potential in the neighborhood.
Benefits of Targeting Emerging Markets for Real Estate Investment
Real estate investors often want to identify and move in on emerging markets because of the potential benefits, including:
- Lower entry prices. Because the market is not yet “hot,” it’s still possible to find affordable properties without much competition. And “buying right” makes it easier to achieve positive cash flow and higher margins.
- Higher growth potential. With demand increasing, there may be greater opportunity for market-driven appreciation.
- Diversification. Emerging markets give investors a chance to diversify their portfolios, which balances market risk and reward potential.
Risks to Consider When Investing in Emerging Markets
While emerging markets offer potentially greater return potential, it comes at the cost of increased risk. Here are a few possible risks to consider before investing in an emerging market:
- Market uncertainty. Emerging markets rely on projected growth, which could stall or change because of economic shifts or local policy decisions.
- Longer investment timelines. Appreciation and rent growth often take time, requiring patience and a longer holding period to realize returns. This may also reduce liquidity.
- Economic concentration risk. Many emerging markets depend on a small number of major employers or industries, increasing vulnerability to layoffs or closures.
- Infrastructure delays. Planned improvements in fundamental public services like transit, schools, or commercial development could take longer than expected, which may impact returns.
- Regulatory and zoning changes. Local governments in growing areas may introduce new regulations, taxes, or rent controls as markets evolve.
Are Emerging Markets Better Investments than Established Markets?
Emerging markets aren’t necessarily better than established markets. It depends on your goals. Emerging markets may offer higher long-term growth potential, but they often require more patience and carry greater uncertainty. Established markets can provide quicker returns, stronger liquidity, and more predictable cash flow, making them a better fit for investors prioritizing stability and income.
How to Identify Emerging Real Estate Markets for Investment
In today’s Information Age, there are multiple data sources to help you identify emerging real estate markets, including:
- Census data, which shows changes in population and demographics.
- Employment reports, which show changes in local job markets.
- Local permit offices, which track new development and structural improvements.
- Local government planning offices, which show upcoming investments in community infrastructure.
- Rent rate tracking platforms, which show rental demand and rate trends.
- Real estate analytics platforms, which amalgamate data from the sources mentioned above to provide easier access to information and valuable market insights.
Strategies for Investing in Emerging Markets
Buy-and-Hold Rental Properties
You purchase a rental property (which could be a single-family home or multi-family building), rent it out to qualified tenants, and collect passive rental income.
This long-term strategy allows you to capitalize on rent growth, appreciation over time, and property ownership tax breaks.
Value-Add Projects
Existing properties in emerging markets are often in a state of distress, experiencing maintenance issues, financial trouble, or both. This gives investors an opportunity to add value to the property through renovations and other improvements.
Adding value forces appreciation, which allows you to sell for a higher profit. You could also hold the improved property as a rental, charging higher rental rates as a result of the enhancements.
Ground-Up Development
Developing a new property from the ground up is an opportunistic investment. The potential upset is impressive, but it requires more resources and experience than buying an existing property. You’ll need to buy raw land (or a plot with a structure that needs to be demolished), secure permits for new construction, hire an architect, find a qualified general contractor, fund the project, oversee construction, and successfully sell the completed property.
You could even take this a step further by developing a new building from the ground up, then carrying it into a rental holding. This build-to-rent (BTR) strategy allows you to benefit from both the forced appreciation of the new construction and the cash flow and tax breaks of the rental holding.
How to Invest in Emerging Markets with Less Personal Risk
If you want to enjoy the potential benefits of investing in emerging markets, but also want to mitigate the risk, consider partnering with a real estate syndication company that explores these markets with a team of real estate analysts.
Real estate syndication companies, like Gatsby Investment, pool funds from multiple investors to finance carefully vetted real estate projects. The project could be nearly anything, including the buy-and-hold rentals, value-add opportunities, ground-up developments, and even BTRs that we just discussed!
Established real estate syndication platforms have the experience, skill, industry connections, and systems in place to minimize investor risk while maximizing return potential. When you pool funds with other investors, you can buy into a high-value real estate opportunity with comparatively low investment amounts (as little as $25K in some cases!).
It’s worth noting that Gatsby also serves high-net-worth real estate investors who have the funds to develop a new property, but not the time or interest to manage the development. If you’re interested in sole ownership, check out Gatsby’s built-for-you program.