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February 23, 2022

How to Deal with the Fear of New Markets

The Real MF Guys Show Episode #9 with Chris, Eli & Nathan, owners of Atlas Multi Group, focusing on “How your fear of new markets may, and is likely, sabotaging your returns”. The Real MF Guys Show

The market shouldn’t be your primary motivator

So often when we’re bringing a new deal to market or talking to investors, one of the first questions typically asked is, what market is it in? Where’s the deal? 

Some general partners lean more towards a certain market because of the ease of pulling off the deal. They might say you can raise money quicker in certain markets, but it’s not necessarily that the deal is better in those markets. 

“The market is not going to make or break your deal” 

As syndiactors, we try to go out to other markets where there are good value ideals, less competition and have more opportunities. We don’t always go to the primary markets, instead we go into Class B or Class C, where we can buy property for a fraction of the price you would get in the DFW or Jacksonville area. “We might be looking at smaller or tertiary markets that are outside of the known comfort zone”. 

Criteria to know in what market to invest

It all comes down to what you’re looking for as an investor. Do you prefer to stay in primary or hot markets that are familiar, or branch out? You may make a little more money if you ask just a few questions. 

Every operator runs a little bit different. It’s up to that particular owner, as a general partner or a lead sponsor, to find these deals, get them under contract and then take them to investors. Don’t be turned off just because you aren’t familiar with the city, instead build comfort and trust with your general partners. As general partners we look for three things to gauge if it’s a viable market.

  • Rent growth
  • Employment growth
  • Population growth

When you have those three things you generally have a growing market or pre-growth market. If you write a deal and make the business work without that growth, then great. If the market just explodes and everyone goes and buys there because it’s popular all of a sudden, well now it's going to be easier to sell and your property is probably worth a little bit more due to demand. “We love catching markets right before they pop”.

Look for the unfair advantage

Our motivation for looking at Arkansa is it’s very landlord friendly. The politics and their laws are very pro landlord. Whenever we’re going into a property and we’re trying to push out all these bad tenants to fill with a better class, one of our main tools that we use is evictions. One bad tenant can bring a lot of negative energy onto the entire community. In Arkansa, it isn’t a long or hard process to be able push somebody out for not paying rent or for breaking their lease. 

“This can give you an unfair advantage against your competitors” 

You have to be brave enough to go outside your comfort zone in markets such as Arkansa, instead of being sheep who stick with the known, as with Dallas or Jacksonville. 

Be Open to New markets

In big primary markets like DFW, for instance, you know it's been traded. Sometimes a property has been sold two, three or four times already in the last twenty years which means they have already rehabbed the interiors/exteriors several times. Whereas you can go to Arkansas, buy for a fraction of the price that you can buy here in the DFW area, and then do a true value add. 

You may find an owner who's owned a property for ten, twenty or thirty years. They have been holding on to it for their family and have just kept it in good condition, but he or she just hasn't upgraded any of the units or exterior. The place isn't falling down and decrepit, because they've put money into it, but the property has only been kept to where it's an okay place to live. It still has pink tile around the tub and horrible old laminate countertops that are just in really bad shape, or doors falling off the cabinets. They have residents who have been there for 15 years and are “not thinking about how they can squeeze the most out of these properties”. 

We are then able to come in and buy the property for a fraction of the price, invest initially into the property and then flip it for a profit quickly. We force appreciation in the sense of flipping houses. The market matters, but it shouldn't be the primary thing you look at as a business. Be open to new markets or new areas as long as it checks those boxes that you are looking for. 

How your fear of new markets may, and is likely, sabotaging your returns.

  • Grow beyond the current markets
  • Know what you’re looking for as an investor
  • Look for the unfair advantages
  • Force appreciation 

Follow us for more weekly on Spotify at The Real MF Guys Show. Learn more at Atlas Multifamily Group.


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