Tertiary markets can be attractive for multifamily acquisitions for several reasons, especially for investors seeking strong yields, lower competition, and long-term growth potential. Here are the key advantages:
1. Higher Yields and Cash Flow
Cap Rates in tertiary markets are typically higher than in primary or secondary markets, meaning lower acquisition prices relative to income.
Lower purchase prices often translate to stronger cash-on-cash returns, particularly appealing for investors prioritizing income over appreciation.
2. Less Competition
Institutional investors tend to focus on large primary and secondary markets.
Tertiary markets offer reduced buyer competition, allowing for better deal terms and the ability to source off-market or value-add opportunities.
3. Favorable Supply and Demand Dynamics
Many tertiary markets face limited new construction due to land constraints, regulations, or less developer interest, helping keep rental supply in check.
As people are priced out of larger cities, migration trends toward more affordable markets support demand for workforce and affordable housing.
4. Demographic and Economic Trends
Remote work and quality-of-life shifts post-COVID have driven population growth in smaller markets.
Employers relocating or expanding into these areas boost local job growth, supporting long-term rental demand.
5. Lower Operating and Renovation Costs
Labor, materials, taxes, and insurance are typically more affordable, reducing both operating expenses and renovation costs.
These factors help investors execute value-add strategies more efficiently.
6. Potential for Appreciation
While not the core driver, many tertiary markets experience above-average rent growth and property appreciation, especially when early in a growth cycle.
7. Easier Property Management Relationships
Smaller markets often have more collaborative local governments and tight-knit communities, which can make permitting, maintenance, and community engagement more efficient.
Use Case:
An investor targeting stable, cash-flowing assets with long-term upside might prefer a well-located 100-unit asset in a growing tertiary market where competition is low, operating costs are manageable, and rents are steadily rising due to population growth.