7 Reasons To Invest in Rural Real Estate
I grew up in a rural Texas town with a population of less than 10,000. Actually I think it was closer to 6,000. My graduating class was less than 100 students. And I couldn’t wait to leave!
However, when I began my real estate investing career 10 years ago I returned to my roots and have since bought many single family residential properties in my hometown using a buy and hold strategy. It has proven to be an excellent strategy for me.
Most people don’t consider the advantages of investing in rural property. Today I’d like to share some of these advantages (and some disadvantages) with you.
Advantages of Investing in Rural Real Estate
Below are some of the benefits of investing in rural properties. I’m sure there are more but these are my favorite.
1. Properties are Cheaper and Provide Excellent Cashflow
While buying cheap property is not always prudent, rural real estate in general is cheaper than what you’d find in most urban areas, and it often provides excellent cash flow. The cash flow is more important than the price of the property. All of my rural rental properties meet the 1% rental rule and some are at 1.5%. Haven't gotten a 2%er yet though! Put simply the 1% rental rule implies that a rental will produce 1% of it’s value each month. Therefore, if I purchase a house for $100,000 it should produce a rent of at least $1,000/month.
2. Easier to Get Started
For many beginning real estate investors a lack of cash to complete the first deal is a major roadblock. Because rural properties tend to be cheaper they require less cash to close the deal. The average price of my rural property purchases for buy and hold is $42,800. My average rent per property is $650.
3. High Demand for Single Family Residential Properties
Most rural areas have very little new development of single family properties. In my area there have been a few new multi-family developments through the years (very few), but the demand for single family residential properties is very high and new development is almost non-existent. My vacancy rates have been very low through the years and we almost always get a flood of calls when a house becomes available.
4. Less Competition
In most cases there are just fewer investors to compete with. I personally know two other investors working in my area. I’m sure there are others, but there is plenty of available property to go around due to the aging in these areas as I’ll describe next.
5. Good Supply of Property
Many rural areas have an aging population. Young people in these areas tend to migrate to larger urban areas in search of jobs and social opportunities. Much of the remaining population in these cities is older and as they are dying or moving to assisted living facilities their children or grandchildren (who are living in urban areas) often inherit the properties. And quite frequently the people inheriting these properties don’t want them so it’s easier to pick these properties up at a big discount! This doesn’t mean that every rural area is dying. Without question some rural areas certainly are, but that isn’t always the case. When looking for a rural area to invest in I look for small towns, located along major highways, just outside the area of influence of a major city. Here you’ll find the great deals associated with rural properties and hopefully set yourself up for increased values in the coming years as the larger urban areas expand! At the very least these cities should at least maintain the status quo and not become dying towns.
6. Easier to Build a Brand
As I mentioned above there just isn’t as much competition in smaller towns so it’s easier to build your brand. People come to recognize your signs and marketing materials and if you’re doing things right will associate your name with quality properties and ownership.
7. Other Advantages
There are many other advantages including the satisfaction of improving the quality of life in these areas, ease of becoming familiar with the area and contractors, lower property taxes, less regulation, and more.
Disadvantages of Investing in Rural Real Estate
Of course there are certainly disadvantages of investing in rural real estate so let’s cover some of these as well.
1. More Difficult to Sell
There’s just no getting around this one. Properties in rural areas are more difficult to sell. That’s part of the reason why you can get better deals in these areas, but if you want or need to sell your investment properties it can take some time. Some strategies just don’t work real well in these areas. Flipping for instance is more difficult in most cases.
2. Lack of Support Businesses
I’ve run into this situation on multiple occasions. Sometimes there are only one or two contractors providing service in some areas. For example, instead of having access to a dozen plumbers you may be limited to one or two.
3. No MLS
Many of these areas don’t have an MLS so finding properties can sometimes be a problem. You’ll often find a handful of realtors working the areas though and they’ll usually have websites listing the properties.
4. Estimating Property Value
Single family homes in rural areas don’t exhibit much homogeneity. Almost every house will be different than the next so it’s more difficult to estimate the value of a property. There are few if any production builders in these areas and it’s not uncommon to find houses that are anywhere from 50-100 years old and of widely varying quality. This will require you to spend more time getting up to speed on the proper valuation of a property.
5. Lack of Property Appreciation
In my opinion you should never count on property appreciation when considering an investment, and this is especially true when evaluating rural properties. Rural properties simply don’t appreciate like urban properties in most cases. However, by following my guidelines above regarding the selection of appropriate rural cities you can potentially set yourself up for some potential property appreciation in the future if growth moves in the right direction.
In conclusion, there are many good reasons to invest in rural single family homes. In my opinion many investors are missing out a lot of great opportunities. Sure, there are some disadvantages but the same can be said of any potential investment.