Real Estate News & Commentary

Small Town Markets Have Huge Investment Potential in 2020—Here’s Why (& How to Capitalize on It)

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portrait happy carefree woman tourist in straw hat, white shirt walking and exploring small streets. Vacation in Thailand. Tourism and travel concept.

Bob Dylan had it right: The times, they are a-changin’. A pandemic, economic challenges, and civil unrest tend to do that. The year 2020 has forced people to deal with social, spiritual, emotional, and economic changes. It's also challenged people to explore ideas they might not have considered six months ago—like where they live. Consider this a silver lining if you're interested in small town real estate.

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Related: 13 Books to Take Beginners From Zero to Real Estate Investing Hero

Small Town Living Is Back

After the second industrial revolution at the turn of the 20th century, people began flocking to cities. American cities grew dramatically—we wanted to be closer to work opportunities and live somewhere where we could reap the benefits of large-scale industrial projects (think: indoor plumbing, electricity, accessible schools, and medical care).

Today might usher in a reversal of this trend, as Americans move back to small towns and rural areas in droves for the first time in over 100 years. COVID-19 has been a huge catalyst for this change.

The pandemic has demonstrated:

  • The rat race is not all it was cracked up to be
  • Work doesn’t need to happen in an office building
  • Losing the daily commute is not a bad thing
  • Focusing life around home reduces expenses
  • Family-centric living has unexpected benefits
  • Social distancing may become permanent.

Our rearranging priorities may create an unprecedented change in the housing market. What a great opportunity for the savvy real estate investor!

Related: The Pros and Cons of Investing in Small Towns and Rural Areas

Housing Must Accommodate the “New Normal”

As more companies allow employees to work from home, more and more Americans may consider a dramatic housing change. They're no longer handcuffed to big cities, and as a result, many may come to see the advantage of small-town life—more square feet, larger dining rooms, quiet property, smaller communities, and more space between them and urban metro areas. I expect workplace flexibility coupled with historically low interest rates will lead to an increased interest in new ways and places to live, and you may find more real estate agents advertising listings in the "small city."

This is led by the shifting mindsets of three different generational cohorts.

Millennials

As the segment of the American population with the largest buying power, it makes sense why we’re paying attention to Millennials. Here’s what you need to keep in mind: A strong interest in green spaces and low-impact footprints makes living in high-density cities less appealing. They may not be interested in having nearby homes; alternatively, they may want to be close to large cities—without being in the city proper. Smaller towns with easy access to major metros may see a nice boost.

This shared sentiment among Millennials could make this group a strong growth driver in the small town housing market.

Gen X

The majority of real estate articles may be focusing on Millennials, but keep an eye out on Gen X, the cohort in its peak earning years. The proverbial, oft-forgotten middle child, Gen X-ers are becoming empty-nesters and considering retirement. This generation has the most flexibility and freedom to invest their hard-earned money. And they’re realizing: We should work to live, not live to work.

As such, Gen X-ers want homes that provide access to careers and proximity to family. For some, this might mean owning several smaller properties in different locations, allowing for mobility. Although many have rented or leased after the 2008 housing market crash, a Gen X homeownership comeback is underway. And when they settle down, it will probably be away from the hustle and bustle of urban locations.

Baby Boomers

A “silver tsunami” may disrupt the housing market as the post-World War II generation retires, moves, and downsizes. When they’re not moving in with their Millennial or Gen X children, expect this cohort to look for small, easy-to-care-for spaces—without giving up their favorite comforts. This will dramatically change housing inventory and the makeup of major American cities that were once traditional retirement hubs.

Less-developed small towns that get smart can start catering to this well-funded, decisive group. Unlike the Silent Generation’s isolated retirement home trend, retired Baby Boomers may prefer smaller, self-contained communities populated by a variety of generations.

Small towns and communities that offer active and walkable neighborhoods with social clubs, community and activity centers, pools, walking trails, fitness centers, health care, and more will have strong appeal. Boomers want to stay busy and social while remaining independent, which makes re-conceived small-town living very appealing.

Telluride, Colorado - small town village in Colorado with sign for city and flowers by historic architecture on main street mountain view

Targeting Different Generations in Small-Town Housing

Engaging these evolving cohorts requires new types of creativity. The needs of the buyers should be met with a deep understanding of a world changed by COVID-19 and an appreciation for the distinctive housing desires that manifest as people age.

Ask the following questions to give yourself an edge when considering a potential investment purchase:

Who’s the target?

Each cohort has different motivators. Make sure you are clear on the type of person you will be trying to attract. This will help you decide on the location, style, and amenities you will need to include in your new project.

What’s missing?

Focus on the types of housing developments that are currently missing in the marketplace, keeping in mind new trends in ways of living.

If you’re targeting Millennials…

The call of the wild and appeal of outdoor spaces is creating demand for co-living environments set in nature—particularly those featuring small homes and common work and play spaces.

If you’re targeting Gen X-ers…

Remember, these folks may no longer be tied to an office. They may be interested in moving around more frequently. Consider high-end Airbnb rental units in remote locations.

If you’re targeting Baby Boomers…

Embrace the need for a low-maintenance community and access to great services, like hospitals. This makes zero lot line homes ideal.

What’s on the “wish list”?

Small-town living doesn’t mean low-end living. For building projects, identify the unique wish list items that will make your property stand out from the competition. From mountain views to green building materials to ocean access to state-of-the-art technology, make sure to incorporate at least two distinctive offerings to help clinch interest.

Capitalizing on Post-COVID-19 Real Estate Opportunities

The pandemic is causing many property owners to reevaluate their investment. Because of this, maximizing your portfolio requires keeping an eye out for an increase in the availability of worthy properties, as well as undeveloped land (for brave souls) in less congested parts of the country.

Like the 2008 recession—often linked to the "subprime mortgage crisis," which saw home loans granted to borrowers with poor credit histories—the economic challenges introduced by the global pandemic are uncovering faulty or weak financial arrangements. Some property owners may either be forced to sell to avoid foreclosure. They also may simply become skittish about the future, making them open to divesting.

From commercial lots to multi-unit dwellings to vacation rental properties, some owners are finding it hard to hang on with reduced rental demand. As such, the property market will soon be flush with opportunities.

When times are tough and situations are in flux, a smart real estate investment can yield long-term dividends and become a stable income generator. For the prepared investor with elasticity in their finances, these challenges offer prime real estate opportunities for pennies on the dollar—especially if you’re willing to look in small-town American.

Scooping up underdeveloped or partially developed land and waiting out the current economic challenges could mean a boon just a few short years from now. There are immediate benefits, too—like the steep tax breaks often available for owners of these types of investments. You’ll want to look at writing off operating expenses related to the properties, as well as depreciation costs on the potential rental value.

To meet the needs of a newly emerging housing market, we need to change our old ways of thinking. Seeing buyers in generational cohorts will allow us to embrace targeted creative possibilities and select smart investments that can yield strong value for our bottom line. Prime real estate opportunities require a new way of looking at the market.

Are you ready?

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What other trends do you see emerging in the wake of coronavirus that investors should pay attention to?

Share in the comment section below.

Sue Hough is passionate about everything construction and loves building. For most of her adult life, Sue has been a residential builder in the Chicago market and founder of
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    Demetrius Lindsey Investor from Milwaukee, WI
    Replied about 2 months ago
    This a great article and some insight I had not even considered. This pandemic should be profitable for the prepared.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Thank you very much Demetrious, glad I could help you on your path to great success!
    Julian Sage Property Manager from Florida
    Replied about 2 months ago
    Thanks for sharing!
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Julian, glad to help!
    Bretton Wimmer Lender
    Replied about 2 months ago
    You literally wrote down what has been on my mind since covid hit! Great article. I think a powerful thing to consider is also internet speeds. I am under contract in a rural area and one of the contingencies (I made sure was in the contract) was internet capabilities. Spotty 25-50 mbps speed is not going to cut working from home for two people (especially when that's the "advertised" max). After a few more phone calls I found out that there was a fiber optic line ran about 1200 feet from the driveway. So now I have an opportunity for a few thousand bucks to get fiber optic internet to a 70 acre parcel! Such a huge selling point in my opinion. I believe this is going to be a future trend because telecom companies have big tax breaks right now for expanding into rural areas. Thank you for the article Sue!
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Thank you for that great advise Brian and good luck with your new project!
    Brian Hansen
    Replied about 2 months ago
    Smart thinking, Bretton.
    Derek Magdziak Rental Property Investor from Boston, MA
    Replied about 2 months ago
    This is a fantastic summation, thank you Sue!
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Thank you Derek!
    Nick Mehl Architect
    Replied about 2 months ago
    Really enjoyed the article and can't agree more with the premise. Does anyone want to speculate on some great small towns with potential for growth in the coming months and years? My thought is it has to be a place with bigger city amenities. For me that's access to education, outdoor sports, high speed internet - possibly an airport not far away - and a few really good breweries and cafes. The first couple of places that come to mind are Asheville, NC and San Marcos, TX.
    Cameron Whitehead Flipper/Rehabber from San Marcos, TX
    Replied about 2 months ago
    Nick, I'm in San Marcos. Reach out if you need anything.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Nick, I am in the beginning phases of a development about 40 miles from Asheville NC. Love the area and think the possibilities are tremendous. Good luck to you and thanks for your kind words!
    Nick Mehl Architect
    Replied about 2 months ago
    Hope you do well! Please let me know if you need an architect. I’d love to help out.
    Edwin F Zhingri
    Replied about 2 months ago
    Great article. Waiting patiently to buy my second house hack. When prices drop I will be ready. THanks for sharing :)
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Thank you very much for your comments and taking the time to read my blog. Good luck on your second deal!
    M Jane Garvey Rental Property Investor from Glen Ellyn, Illinois
    Replied about 2 months ago
    Thank you Sue. Lots of momentum already seen, and I'm sure there will be lots more coming. I like the way you broke your analysis up by market segments. They do not all have the same needs or goals and it is a very important thing to consider when you are deciding what to invest in.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Thank you for your comments!
    Chris Brandlon
    Replied about 2 months ago
    I recently relocated from Portland, Oregon to Lincoln City, a beach town of about 10,000 located about two hours away. The local economy here is tourist-dependent, and since the re-opening, things are going pretty well in spite of everything. Like many small towns outside the Portland metro area, this community is seeing the beginning stage of "urban flight" growth. With inventory still on the tight side, existing home sales are strong; the rental market is even tighter, at least for now. Residential property owners, whether landlords, STR proprietors, or sellers, are doing just fine these days. While the future remains uncertain, it seems likely these conditions will continue to buffer our small town market from the potential downside of looming social and economic uncertainty.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Chris, I am so glad you are seeing first hand what I believe to be something very wonderful in the real estate market. Glad you enjoyed my blog and thanks for your comments!
    Curt Wortman Rental Property Investor from San Jose, CA
    Replied about 2 months ago
    Nice!
    Michiko Gladman from Elk Grove Village, IL
    Replied about 2 months ago
    Hi Sue, Great article! Thank you.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Hi Michiko!! Thank you very much for your comments and hope your day is wonderful!
    Nathan G. Real Estate Broker from Cody, WY
    Replied about 2 months ago
    I'm located in Cody, Wyoming and we're seeing this take place right now. The number of out-of-state renters and buyers is ridiculous. We've had plenty of available storage units but are now creating waiting lists. We are seeing properties sell for full price or higher, all cash, competitive bidding, and there are no signs of slowing. Vacant land that has sat on the market for 10 years is now under contract. Construction crews are contacting me to lease or purchase space to set up shop for new construction opportunities. It's unprecedented. We were already drawing attention when Kanye West purchased a $14 million ranch last year. He plans to move his Yeezy design team here and eventually wants to manufacture from seed-to-sew here. I've felt this community was ready to explode at any time. The events of 2020 have set the wheels in motion. If anyone wants to purchase their piece of heaven, give me a call!
    Matt Stricklen Investor from Austin TX
    Replied about 2 months ago
    Sweeping generalizations and conjecture. There is so much of what might happen here that is being conflated to --this will be the new trend. Where are the numbers? Think about what kind of mass migration would have to happen to make this idea more than a statistical blip. What percentage of the people in any of these broadly labeled groups have said : " I want to leave the city?" And out of that group, what tiny percentage of those who have that desire actually have the job flexibility and the other necessary mobility factors to do that? The unemployment rate nationwide is at 11%. Do we expect those jobs will return to small towns before large metros? That would be a first in the history of human civilization. These potential changes can be important to think about, but there is no actionable data here.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Matt, Thank you for your response, although I disagree my article was based on "generalizations and conjecture". With any major social and economic disturbance, both within the United States and globally, there is a tremendous social change which will follow. This occurs from within a very personal level in individuals. During times of upheaval and fear many people are forced to reexamine their personal/family ideals which include the basic primal instincts of "am I safe and is my family safe", followed by desire "am I happy and is my family happy". During good times people are not as compelled to make changes, quite simply because they are happy. Therefore, as dictated throughout history, a global pandemic to the degree which we are experiencing will be the catalyst which will cause great social change. The migration rates within the United States during the Great Depression was 6.64% of the entire population, based on statistics published by The US National Library of Medicine National Institutes of Health PMCID: PMC5673135 (I am unable to post links within Bigger Pockets). After World War II the migration from the South to the North was 5.1% of the entire population of Southerns in a study from CATO Institute published January 28, 2014. There are many studies proving the same thing; during social upheaval a large sector of the population will change where they live based on their personal beliefs stemming from their ideas of safety and happiness. Currently, the unemployment rate in the United State is 10.2% (August 7, 2020) which equals 1,800,000 jobs, versus the unemployment rate in August 2019 which was 3.7%. Today's unemployment rates are a bit hard to navigate successfully due to many factors, the biggest is; two-thirds of the current recipients are earning more on unemployment due to the $600 Federal boost (Business Insider July 7, 2020). Without having to emphasize the obvious, many of these people will be back to work once the benefits end. Although, I do admit, this area because it is so complex under the current situation, is difficult to navigate. My article was intended to focus on the following target group of individuals; those people with the earning capacity to move freely and purchase homes. I do apologize if that was not clear. In the United States there are 157 million adult workers (Pew Research Center). Based on that number, I calculate the total amount of individuals with the financial wherewithal to fit my model would be 30%, a total of 47.1 million people. Further reduce that number to account for two-income families by 35% gives 30.64 million adults fitting my model. Based on previous data from The Great Depression and WWII, I will account for an average of 5% of these individuals making a significant housing transition over the next one-five years. Total people transitioning; 1.53 million people. I strongly believe this is significant enough to warrant the examination and preparation for new housing options meeting the needs and desires of this group. I hope I have answered your questions. Thank you very much for your comments.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Nathan Thank you very much for your comments and I am excited for your new opportunities! Good luck to you
    Melissa Wesling Investor from Chicago, IL
    Replied about 2 months ago
    Great way to target the different generations. Rural areas definitely have their draw right now! These projections also are true for the short term vacation rental market as research points out that rural vacation rental markets have seen great recovery since the pandemic began and many are doing even better than their 2019 rental bookings. The trend for social distancing and returning to nature won't be gone anytime soon in my opinion!
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Thank you Melissa for your comments. I agree totally!
    Barry W Bahr Investor from Tampa, FL
    Replied about 2 months ago
    Great article Sue. While the article was directed to small town markets I believe your insight to the different generations can apply to any market. Also, can I gain access to My Rehab Academy? I am interested in learning more about rehab.
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    You can message me directly, and thank you very much for taking your time to ready my article.
    Joseph Bafia Investor from Raleigh, NC
    Replied about 2 months ago
    Glad to hear you are targeting an area near Asheville as that's where we've been expanding to over last 2 years! Good luck with the development!
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    Thank you for your comment and your valuable time. I hope your expansion is going well.
    Kristofor Rahmas Rental Property Investor from St Petersburg
    Replied about 2 months ago
    Wow, you hit the nail on the head for me. Gen-Xer who is interested in nothing but travel and mobility. Been checking out long term air bnb rentals in remote locations for a few weeks now...who knew i was so predictable!
    Sue Hough Developer from Chicago IL
    Replied about 2 months ago
    @kristofor (I don’t think the link is working properly). Don’t you just love when you are spot on and don’t even know it...:). Good luck finding your way though traveling. I am going to embark on a similar journey early Spring, perhaps our paths will cross.
    Rohini Parab Real Estate Agent from Tracy, California
    Replied about 1 month ago
    Great article Sue.... Experienceing it first hand here in Central Valley. Bayarea... traffic has increased tremendously since COVID-19! Bueyr's who were staying away because of the long commute, now work from comfort of home and homes are still affordable in Tracy, Lathrop, Manteca, Mountain House Area. I loved your on point exectations as per the generation.
    Sue Hough Developer from Chicago IL
    Replied about 1 month ago
    Thank you Rohini for sharing and your compliment! I hope the traffic translates to a hugely successful year for you. Sue