Buying rentals in rural areas?

Question

I did a search and found a few threads about this but they are pretty old.

I am having a hard time finding properties in cities and suburbs that are what I'd consider a deal due to the high demand and low supply. However if you look In rural areas, there does seem to be opportunity to snag some deals.

Does anyone buy rentals in rural areas and are willing to share their experience in today's sellers market? Perhaps the property isn't even a small town, but literally out in the country 15-30 minutes away from the nearest town.

What concerns me is I'd buy something and then it sits vacant for months, so I've been focusing on good locations...along with everyone else.

Thomas S. · Answer

If it has not sold it is over priced, way over priced. The CoC returns are irrelevant. You must know and understand the devalue of the real estate in the area. City investors always get distracted by the numbers and risk over paying.

Keep in mind expenses will be far higher than they are for the present owner, stay with the 50% rule maybe even higher. Rural tenants usually fall into the C class property type and require much greater hands on management including evictions and extended vacancies. It is a different market that must be learned as with any market. Bottom line it is not what you are use to and you can not expect the same results as city numbers may indicate.

Gordon French · Answer

I have 11 properties all in a small town. Population 7,000 people. Mine are in the center of the town as that is where the deals are. The places farther out of town are larger farms and would cost more in rent then the locals can afford. Thus I avoid them. The small town has been great for me.

I feel the small town is less effected by housing balloons. More stable and more predictable.

The key factors are the same as in the city. You have to see what you can rent it for. You have to know there is a rental market. In my town there is 0 new construction. I mean 0. In the 7 years I have lived here not 1 new house has been built.

This has caused a very high demand for rentals. I have a nice waiting list of people looking for homes and typically rent my homes the same day I close on them.

edit: My town is an 1 hour and 15 min from any city and or shopping

Bryan Blankenship · Answer

I wouldn't buy rentals FAR out at all, but depending on area, many of our local rural areas are very popular and rent up quickly.  I'd make sure I got an even better deal to offset the inherent additional risk of rural, but we do have several rural rental properties and love them.With that said, I'd focus on WHY folks love them in that area.  IE:  If they are avoiding the city and want to rent rural, it's likely because they want 1ac of land or more to have space for family to play football...so buying a rural .20 ac lot just won't work.  That's the case here.  Rural is great, because folks love large lots and neighbors that aren't as close.Also, we're 8 and 11 mins to the 2 major interstates, so it's a bit "rural" but isn't 30 mins from primary shopping by any means.Rural can work if you're close enough to major metros, shopping, banking, etc but you have to be sure you're buying right and can easily resell should the need arise.

Mitch Brunette · Answer

Hi All,

I know this thread has been quiet for 7 months but I'm in the same boat here looking at a deal that is just under $100k for a Duplex.  It's old, but it's currently owner occupant and a tenant with a good lease in place and have been tenants on the second level.  The deal ends up being 19-23% cash on cash return after accounting for all expenses (I've seen his quickbooks) and I've added 5% vacancy, more than 5% repairs (based on his quickbooks), and 5% Capex.

The fun part is the owner is one of those awesome retired guys that has done nothing but carefully care for the property and fixed all kinds of little things.  Based on that, it's in great condition.

Tough part is knowing what to pay.  Closest comp sold for $75k and was a nicely updated duplex w/2br 2 ba in each unit.  The one I'm considering is 3b 2ba on main level and 2b 1ba on the upper.  Again, a cash on cash return after ALL expenses of approxomately 19-22%.  Hard to ignore that cash on cash return.  26% of community are renters (population of 19,000).  A large medical company just bought the hospital nearby and is projecting job growth of something like 15% in the next 10 years.  Appreciation has averaged about three quarters of a percent (yes you read that right) over ten years.  So if ever a deal has to make money the day you buy it, this is the deal.  Can't bank on it making SQUAT when sold.

He's owned the property since 2010 for $30k.  He probably put $15k into it is my best guess plus sweat equity.  I think it's worth between $80-100k but hard to know for sure.  He listed in 2014 for about $115k and has pulled and relisted with slightly lower prices for 4 years.

Wondering if I'm missing something since it hasn't sold in that long, other than that his price was crazy high at $115k, and might be a tad high at $100k.

Hope someone sees this and is willing to help. Love this site, podcasts, and posts!

Buying rentals in rural areas?

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