Episode Description
In this episode of Building Passive Income, CREI Collin explains the differences between primary, secondary, and tertiary real estate markets and why understanding market size is an important part of any investment strategy.
Although these classifications are widely used throughout commercial real estate, they are not universally defined. Instead, they provide a helpful framework for comparing market size, economic activity, competition, affordability, and cash flow potential.
You’ll learn the advantages and challenges of each market type, explore real-world examples, and discover how to determine which market best aligns with your investment goals.
What You’ll Learn
- The differences between primary, secondary, and tertiary markets
- Why secondary markets often balance cash flow and appreciation potential
- How tertiary markets may offer stronger cash flow opportunities
- The risks associated with investing in smaller markets
- Why affordability impacts rental property performance
- How market size influences liquidity and competition
- The importance of economic diversity
- How to evaluate markets before investing
- Common mistakes investors make
- CREI Partners’ market selection philosophy
Key Takeaways
Understanding Market Classifications
Primary, secondary, and tertiary markets are commonly used terms within commercial real estate.
While definitions vary, investors generally use them to describe markets based on:
- Population
- Economic activity
- Institutional investment
- Property values
- Market liquidity
- Competition
Understanding these classifications can help investors compare opportunities across different regions.
Primary Markets
Primary markets are typically the nation’s largest metropolitan areas.
Examples include:
- New York City
- Los Angeles
- San Francisco
These markets often feature:
- High property values
- Strong institutional investment
- High competition
- Lower rent-to-price ratios
- Greater barriers to entry
Historically, many primary markets have experienced significant appreciation, although future performance is never guaranteed.
Secondary Markets
Many investors focus on secondary markets because they may offer a balance between affordability and long-term growth.
Examples include:
- Indianapolis, Indiana
- Nashville, Tennessee
- Charlotte, North Carolina
Secondary markets often feature:
- Moderate purchase prices
- Healthy rental demand
- Diverse local economies
- Professional property management infrastructure
- More favorable rent-to-price ratios than many primary markets
For many investors, secondary markets provide a balance between cash flow potential and appreciation opportunities.
Tertiary Markets
Tertiary markets generally refer to smaller metropolitan areas.
Examples include:
- Fort Wayne, Indiana
- Huntsville, Alabama
- Springfield, Missouri
These markets may offer:
- Lower acquisition costs
- Higher rent-to-price ratios
- Less institutional competition
- Strong cash flow potential
However, investors should also evaluate:
- Employer concentration
- Market liquidity
- Population trends
- Property management availability
- Economic diversification
Smaller markets often require more localized research before investing.
Why Market Size Matters
Market size influences more than population.
It also affects:
- Financing availability
- Competition
- Exit opportunities
- Rental demand
- Economic resilience
Every market offers different advantages depending on an investor’s objectives.
Cash Flow vs. Appreciation
Historically, many primary markets have produced stronger appreciation, while many secondary and tertiary markets have emphasized affordability and cash flow.
Neither strategy is inherently better.
The right market depends on factors such as:
- Investment goals
- Risk tolerance
- Time horizon
- Available capital
- Management capabilities
Evaluating a Market
Before investing, consider questions such as:
- Does the market support positive cash flow?
- Is the local economy diversified?
- Are population and employment trends favorable?
- Is rental demand stable?
- Are qualified property managers available?
- Does the investment align with your long-term strategy?
Successful investors evaluate both market-level and property-level fundamentals.
Common Mistakes Investors Make
Avoid these common mistakes:
- Chasing high cash flow without evaluating risk
- Ignoring local economic conditions
- Failing to research employer concentration
- Overlooking property management quality
- Skipping market visits when possible
- Using market size as the only investment criterion
Strong underwriting remains essential regardless of market size.
Building a Successful Strategy
Many investors begin in secondary markets before expanding into smaller markets.
Successful strategies often include:
- Conservative underwriting
- Market diversification
- Strong local relationships
- Consistent due diligence
- Long-term investing
Every portfolio is different, so investment decisions should reflect your personal financial goals and experience.
CREI Partners’ Market Philosophy
At CREI Partners, market selection begins with research—not market labels.
We evaluate markets using:
- Cash flow potential
- Economic fundamentals
- Population trends
- Employment growth
- Operating expenses
- Long-term sustainability
Rather than focusing solely on market size, we prioritize opportunities that align with our investment strategy and underwriting standards.
Episode Highlights
[00:00] Introduction to primary, secondary, and tertiary markets
[03:00] Understanding market classifications
[08:00] Primary market characteristics
[13:00] Secondary market advantages
[19:00] Tertiary market opportunities and risks
[25:00] Cash flow versus appreciation
[30:00] Evaluating market fundamentals
[35:00] Common investing mistakes
[39:00] CREI’s market selection philosophy
Resources Mentioned
- U.S. Census Bureau
- Bureau of Labor Statistics
- Local economic development agencies
- Property management companies
- Market research platforms
Let’s Talk
Interested in learning how CREI Partners evaluates multifamily investment opportunities?
Schedule a call with our team:
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Next Episode
In Episode 113, CREI Collin explains how population growth, job growth, and migration trends can influence rental demand, occupancy, and long-term investment performance.
Disclaimer
This episode is for educational purposes only and should not be considered financial, legal, tax, or investment advice. Market classifications are general industry terms and are not universally defined. Individual property performance varies based on location, management, financing, and market conditions. Always perform your own due diligence before making investment decisions.
Keywords
secondary vs tertiary markets, secondary markets, tertiary markets, primary markets, real estate market analysis, cash flow investing, rental property markets, market classification, commercial real estate investing, multifamily investing, passive income, market selection, real estate education
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