Investing in a small town. Will it rent?

21 Replies

Newbie here. I live in Colorado but I'm priced-out of the Front Range, so I've been looking at properties in my hometown in Iowa. There are nice looking single family houses for reasonable prices. The cash flow works out, but... if I start investing in a small town, how do I know if a property will actually rent?

It's a nice small town of 10,000 with a prospering private college. The town has been slowly but steadily growing over the past several decades. I'm not seeing any new multifamily housing being built to house the newcomers. When I search online, there are some rentals available, but I can't tell if the market is stagnant or not. My parents still live in the area but they don't really keep track of what's going on in town.

Any ideas or suggestions would be appreciated.

Thanks

Marc,

At the end of the day its all about supply and demand.  You can test the water buy posting a dummy ad on craigslist that has some similar amenities the house you are looking to purchase.  If someone calls you tell them the property has been spoken for.

If you know how to put together a good ad you should get your answer that qualifies moving forward or not. 

Jim Sakalis

Ah, good idea. I think I'll try that. Thanks!

@Marc Hemmes so IMO any town with a college or school of higher education will have housing needs. Those needs may or may not coincide with the direction you want to go.

I always start with figuring out what is my ideal tenant and what kind of property they want. I would then buy that kind of property. That is really more important than most of the other things that are considered.

Locate your property nearby businesses and colleges. 

@Bill S.  That's a good point. I'd rather not rent to undergrads with high turnover rates. It would be nice to shoot for a long term tenant. 

Thanks.

There is a price for everyone that works. You can always rent, the question will be can the numbers work out? If you are doing this remotely you are going to need a PM firm to take care of the properties for you. You will need to ensure that you get good deals. In a small town, maybe look to do BRRRR and buy distressed properties.

@Marc Hemmes don't be so quick to dismiss undergrads. My friend has a property that caters to a specific campus organization. When one student graduates there are a few others wanting to move in to the property. Each year one or two graduate and one or two new ones move in. No vacancies nor turn-over costs. He's not had a vacancy in over 5 years and obviously no maintenance. Other than the students not watering the lawn it's in fairly decent shape as well since the students aren't big partiers either. Target groups like engineers, accountants, or religious organizations. While nothing is fool proof, they tend to be more on the studious side. 

Do you have a face book page for rentals for that area in Iowa?  That's a good way to gauge what people are asking at least.  Same for any classified sites that service your area in Iowa specifically.  If you still have relatives there, ask them to keep an eye out for 'for rent' signs and to forward you the contact info.  You could always call an agent(s) as well and ask them what the going rent in a particular area is.  Run your CF numbers with the low end of the rent spectrum for the type of house you're marketing and then advertise with the high end number.  Come down on the price if need be.

Marc,

The major issue/concern I have with investing in a small town is Management. I've found that most "managers" are operating without the affiliations of a broker. In Iowa the law is that in order to collect rent etc.. you need to be under a broker. The other concern I have in a small town is maintenance. I'm guessing travel to a larger nearby town will be necessary for some repairs. I'm not trying to discourage from investing only a couple things to think about.

@Todd S.  That's great info. I'll have to look into the local situation. Thanks!

If you are speaking of a town like Pella, then you have the Des Moines effect (or Wartburg and CF) that can cater to bedroom community commuters. If you are talking about Decorah, then that is about all you have within easy driving distance. 

The problem with most small town Iowa private colleges is that their enrollment has been steady (but not increasing) for the last 40 years. In my opinion with the cost of college so high (Grinell is now over $50k a year) at private schools especially, more parents/high schoolers are going to  elect to go to community colleges, state colleges, or skip higher education altogether. 

There is also a move away from rural isolated small midwest towns as jobs are increasingly concentrated in larger cities as agriculture becomes more scale-able and mechanized requiring less laborers. The exception to this are town that are within easy commuting distance to cities such as DSM, CR, Quad Cities, Iowa City, etc.  

Full disclosure, I invest in Iowa and the Mid-West in general as I have been priced out of the resort mountain communities as well. 

The absolute enrollment numbers in private college towns is dropping but that means the students that are attending have higher expectations and higher budgets. If you find something within an hour of Des Moines and need maintenance I'll do what I can to help.

Newbie here also but I believe that if your properties are well cared for and competitively priced they will rent. My area is even smaller but I still see rentals go quick. I would continue researching and maybe try to find someone in the area who is in the real estate game. 

Tony

@Jonathan Godes  Good points. I'm also looking at properties in between my small town and the nearest "big" town. Perhaps there will be some appreciation in the future as the big town continues to grow, perhaps.

@Tony Sierra That's good to hear. I'm headed to Iowa for Thanksgiving and I'll be meeting with an agent. It should be interesting to take a look around and get the agent's point of view on local REI.

pending which direction you are from the Des Moines area I have 3 realtors I work with to cover the more popular towns here. As far as pm it's going to be hard to find one with only having a small portfolio that will be 10% or less. I've heard of a nation wide on company that charges a flat 85 per unit rate but you'd have to figure the pros and cons.  I know myself personally tend to front a little more money in my projects and finishes which squire a higher quality of tenant and a higher monthly rent. I've been getting 850-900 for 2 bedrooms and 1150-1300 for 3 bedrooms. But I also spend on average about 6k more on a unit than most investors do Burbank my maintenance fees are minimal for many years other than typica wear and tear.

@Marc Hemmes I'm a newbie as well. We moved to a small Wisconsin town in 2015 (pop around 9,500). The market was similar to what you described: small pop and not a ton of rentals available etc. We actually didn't want to buy as we weren't thinking we would stay here longer than three years, however, there was nothing to rent. Not sure if this is a good method or not but we used census data to help us get a better picture of the housing market. That gave us an idea on what a majority of the properties rent for and we went from there. Just an idea...

I invest in small towns, my take is many small towns have high percentage of renters vs owners, at least my my experience has been higher rents compared bigger markets due to demand, and SFR's command higher rents than Multi, the folks that tend to be in small towns struggle with saving money and maintaining a credit score, so you need to overlook credit, and keep strict guidelines regarding payment. I have not had any problem finding tenants, actually if you follow up you should have a waiting list for tenants.

I really don't think of 10,000 as a small town. I invest in homes around towns of 1000 to 5000 but mostly outside city limits. I have had no problems renting them out in fact I wish I had another dozen right now since I rented the last two I have last week within a day of listing. Well the second never made it to listing. I had it rented before I was completely done with the transition fix-ups.

Sure sounds like Pella by your descriptions.  If so Pella does have a strong rental market as of now.  How ever Ive seen rough times there some what over the years.  But overall its a good town to invest in as long as Vermeer and Pella Corp stick around.  Pella has a duplex phenomenon, there are a ton of them and they are still going up.  I own a few and I know most of the contractors that are building them for their own portfolio.  The building isn't likely to stop either.  Pella has a decent tenant base but the cost per unit to buy is high (IMO)  Could be way better than some Colorado markets however that are on fire right now.  If it doesn't cash flow well then I don't participate.    

Do a test ad that is the best way to find out the demand.  Or just look in the paper and see what there are for For Rent ads.

Best of luck

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