How to Determine Rent in a Tiny Rural Town

Question

I just purchased a home in my very small town of 800 in South Dakota. The closest "Big Town" or Walmart is 45 minutes away, lots of times without another car on the road. I believe I purchased the house well and will be in for a maximum of $65,000 after flooring and HVAC including the purchase price of the home. I am having a very hard time figuring what rent I should charge. This is a 2 bedroom home and there are currently only 1 other rental on the market, which is a much older and less updated but bigger square footage home in which they are asking $700 per month. I make almost nothing at that price and am thinking about asking $800 but I don't have much data period supporting any price. Local verbal knowledge says somewhere around $500-$600, which would be money lost. I think the ARV of this home should be $90,000+ and better data supports this number. I want long term income but not sure how to proceed. Any advice out there that would help?

Benjamin Aaker · Answer

Since you don't have rental comps, you need to look at it as a renter would. A person who is looking to your 800-person town would have what kind of income? Are there employers in the area? Check job listings to see what they pay. Look to set your initial rent around 1/3 of typical monthly income for the area. It can take longer to get a tenant into a small town rental than in the city. Be sure you have the financial reserves to pay the bills while it sits empty. You might consider putting it up for sale at the same time as for rent.

Bryce Jamison · Answer

Lesson learned, but this is something you should have done before buying a property.

With a population of 800 and only 1 other rental I'm hoping you find someone to rent it at all. I'd post it for $800 a month and see what happens. Spread the word about this rental as much as possible through social media and telling all your local friends and family. If no one rents it you may have to keep lowering it. I'd rather lose $50 or $100 a month compared to the entire mortgage.

Are there other towns around with people that need a place to live? Can you live there? Can you sell it and 1031 into something else?

Rick Pozos · Answer

If you are going to be into it for 65k and its worth 90k+, sell it with owner financing.You will get 7%, 8% or maybe even 9% for the next 25 or 30 years.

If you paid 65 cash and get 10k down you will have 55k net out of pocket, but will be getting 90k minus the down payment, 80k, at the 9%. So your 55k investment will get you about $671 per month which turns out to be about 14% return on your money!!

Brady Duxbury · Answer

Thank you all for the advice. Update, I have renters in the home and I got what I wanted in value. They were happy to pay, and so far so good! We are right in the middle of refinancing to long-term financing at the moment, but so far this experiment is working as should. Thank you for all the advice!

Scott Mac · Answer

Find out what Section-8 will pay for it--go from there.

Aaron Schrader · Answer

Hey Brady- message me if you'd like, I'm in SD and an agent, I can share with you what I can speak to.  Depending on where this place is at I may not be much help but maybe I can connect you with someone that can help.  And like Rick mentioned, an owner finance sale could be a good option and is not uncommon in SD, I'd be happy to connect you with the escrow companies that can facilitate that.

Gerald Harris · Answer

@Brady Duxbury Try these 2 options.    1.   type into Google:  " real estate agent city, state", call at least 3 agents or brokers in that market or near that market and explain to them what you just mentioned here.   tell them the location of the property ask for rental estimate.   2.  contact at least 2 or 3 management companies in the area and aske them rental rates.    have a great day.

How to Determine Rent in a Tiny Rural Town

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