The Pros and Cons of Investing in Small Towns and Rural Areas
City folk are often attracted to the country life. In many parts of the United States “the country” can be less than an hour’s drive away. I have seen more than one real estate investor (myself included) attracted to rural areas and small towns, but like anything there are pros and cons to investing in rural areas and small towns.
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Let me list some of the good points first.
Benefits of Investing in Small Towns and Rural Areas
- Properties can be significantly cheaper than in larger, metro areas. This can mean greater cash flow or return on investment and is what makes these areas attractive.
- There is often less competition. You may be the only one bidding on the courthouse steps at that foreclosure auction or on that HUD home.
- There is often less regulation. There may not be any zoning laws or building permits to contend with.
- That small town atmosphere can be pretty tempting. “Green Acres is the place to be!”
Sounds great right? However, small towns and rural areas are not as bucolic as they first may seem, for instance…
The Downside of Investing in Small Towns and Rural Areas
- These can be much tougher markets. Properties can take much longer to rent out or sell since your market is much smaller.
- Lack of economic opportunity can restrict your pool of qualified renters or buyers. Plus if your area is dependent on one industry, say farming or a meat packing plant, things can go south pretty quickly with a drought or plant closure.
- That lack of regulation (zoning and building codes) comes with a warning: caveat emptor! And, that junkyard that popped up next door — you are just going to have to deal with it.
- There is a general lack of services in rural areas and small towns. Police and fire services may be sparse or non-existent. If you have a fire, they will often call the farmers out the fields that arrive just in time to save your chimney. These conditions can make insurance payments significantly higher.
- Wells and septic tanks often take the place of water and sewer services. These can work well but they also come with their own issues. You had better learn what field lines are and where not to plant a garden or put the pool.
- You will be doing a lot of driving to show, check on and maintain your properties. Do you really want to drive an hour each way to show your property?
- That small town atmosphere, while charming, can also be stifling. You lose a lot of anonymity in a small town and often times everyone knows everyone else’s business. Plus things (like your renovations) tend to move at a much slower pace.
Small towns and rural areas can be a good place for investment. I have in the past invested in and worked in rural areas. However, just like with any endeavor, you need to really know your market and what you are getting into. Don’t just look at the great prices because the grass is not always greener out in the country.