Real estate investors have been turning to gateway markets to diversify their investment portfolios and generate capital growth. But what exactly is a gateway market?
Ever since the global financial crisis in 2008, large coastal cities have been the best places to invest in real estate for a few good reasons. People flocked to these urban cities in crazy numbers, attracted by their diversification, culture, and opportunities. Major companies also focused on these cities, searching for the best talent and labor force. Savvy property investors understood how these factors made real estate properties in such locations a profitable and luxurious investment. And so the trend of investing in gateway cities began.
If you’re a beginner real estate investor, you must be wondering: Which of the large coastal cities in the US housing market are gateway cities? What qualifies them? And is buying an investment property in a gateway market still a smart decision? Keep reading to find the answers.
Related: Location Location Location: What Makes for the Best Place to Invest in Real Estate?
Characteristics of a Gateway Market
In order to understand why gateway cities provide great real estate investment opportunities, it’s helpful to first clarify their main characteristics. According to numerous sources, a gateway market is a major international city that serves as an entry point into a country (either by air or sea). These cities are often the largest or the capital cities of countries. Furthermore, gateways cities are usually home to either container ports for cargo ships or large international airports.
This definition, however, is too limiting. Real estate experts qualify gateway markets based on their status. For example, cities like New York, Tokyo, and London are recognized worldwide and have a strong (nearly untouchable) brand. Moreover, these housing markets also have a higher degree of liquidity. This, in turn, allows for the easy, convenient trading of real estate investments in gateways cities. Lastly, a gateway market is also considered an economic and cultural powerhouse that offers both opportunity and diversity.
Moreover, gateway cities have highly diversified economies with many sectors and subsectors. This offers many benefits to real estate investors. The larger population and strong economy mean demand for both residential and commercial real estate properties continues to increase. As a result, owning an investment property in a gateway market provides a real estate investor with capital protection and a good return on investment. Due to these qualities, gateway cities in the US attract real estate investors – not only those from different parts of the country but foreign investors as well!
Related: What You Need to Know About Investing in the US Housing Market as a Foreign Investor
Gateway Markets in the United States
According to the CBRE’s Global Gateway Cities Report, the gateway cities in the US are:
- New York: Home to John F. Kennedy International Airport, NYC is the world’s #1 gateway city! NYC still attracts property investors from around the world. It has all the characteristics of a gateway market and offers large-scale investment opportunities, especially in the multi-family sector.
- Boston: The Port of Boston is the largest port in Massachusetts and one of the main ports on the East Coast. Boston offers property investors attractive real estate investment opportunities due to its diverse economy and strong demand fundamentals.
- Chicago: As the 3rd most populous city in the US, Chicago is the largest in the region. Moreover, Chicago’s O’Hare International Airport is the 2nd busiest airport in the country. The city keeps attracting property investors and tenants as other gateway markets became more expensive.
- Washington D.C: Home to 2 major gateway airports: Ronald Reagan Washington National Airport and Dulles International Airport. The nation’s capital is a great real estate market that offers profitable investment opportunities. It has a strong job market, low unemployment, and culturally diverse communities.
- Los Angeles: Economic growth in LA has outpaced the national average since 2015! In addition, the Port of Los Angeles is the top port in the US and the Los Angeles International Airport is the 3rd busiest. As a result, this gateway market remains one of the best places to buy an investment property.
- San Francisco: It’s no secret that San Francisco is one of the most expensive housing markets in the country. Nonetheless, it’s one of the world’s greatest people magnets and a popular destination for foreign property investors. In fact, San Francisco International Airport is a major gateway to Europe and Asia.
ONE MORE CITY
The PwC’s Emerging Trends in Real Estate® Report named Dallas the #1 market to watch in 2019. The report claimed that Dallas is “an interesting market, one with the potential for strong future growth but also with the liquidity of a gateway market.” To learn more about the Dallas housing market and why you should consider buying an investment property there, read: Dallas Real Estate Market: The Best Place to Invest for 2019.
Investing in a Gateway Market: Yes or No?
Many argue against investing in gateway markets claiming they have become victims of their own success. Essentially, they point to the saturation of these cites, increasing competition, and decreasing returns. As a result, property investors turn to lesser-known, non-gateway markets to find investment properties. Although it’s easy to fall into this belief, it doesn’t account for the whole picture. A real estate investor can still find a profitable investment in a gateway market.
Real estate experts believe an investor can still make money in these housing markets. That is, as long as he/she is willing to do the hard work like going through the flood of investment opportunities or investing in renovating real estate properties. In fact, many argue that the best way to invest in a gateway market is by buying properties below market value, renovating and improving them, and selling them for a high return on investment.
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The Bottom Line
To conclude, gateway markets are still some of the best places to invest in real estate. It’s easy to think that investment opportunities are gone in these cities, but the truth is that properties in a gateway market still make for valuable, long-term investments. With the right strategy, savvy property investors can take advantage of the high-growth, stable, long-term market of gateway cities.
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