Investing in Small Towns
Asheville, NC · Member since 2016 · 40 posts · 9 votes
Investing in Small Towns
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Jody SchnurrenbergerPro Member
Investor · Asheville, NC · Member since 2017 · 506 posts · 404 votesI also go to www.BestPlaces.net and look at the percentage of rentals and the vacancy rates. It's personal preference, but I want at least 35% of the population renting (and really shoot for at least 40%) will less than 10% vacancies. Good luck!
44 Replies
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Derek Robinson:
I think Asheville is all hype. There are some businesses that have come in, but nothing that brings in high wages or even that many number of jobs. I've been here for 11 years. I used to be a smallish town with a lot of charm and character, plus it's in the mountains with is a big draw. This got national attention for whatever reason, and it snowballed since then. I feel like Asheville was 'talked' about just as much as Boone years ago (not much). But once we got put on one publication's list of 'top place to blah blah blah', then more publications and media outlets caught on. Once word got out, people with cash came in to buy everything they can at inflated prices, remodeling and reselling to others with cash and so on.
I purchased most things 4 to 5 years ago and I've slowly started unloading in Asheville in the past year or two. I have a few mulitfamilys that do well that I'll hold a bit longer, but I've unloaded most single family homes.
I've been down here 25 years and it is amazing to see how things have changed. The biggest deal is retirees and artsy-fartsy types bringing their cash from NY, NJ, Ohio, Michigan, Illinois, etc and being amazed how far $300k will go here. In the areas they are leaving, 300k doesn't buy a hell of a lot, whereas it still gets you a pretty nice house in AVL. People who actually have to work jobs have not seen concurrent wage increases, so the working population has been pushed further into the periphery. Anything vacant within 5-7 miles of downtown is fought for like meat in front of a wolf pack. The crash in 07-10 was pretty vicious here and it's really only recovered in the last 2-3 years. It reminds me of then, maybe not quite as frenetic but pretty close.
Skyline Properties - Realtor · Hermitage, TN · Member since 2014 · 125 posts · 93 votes8y
I am a numbers guy in Nashville. I can't offer specifics for Asheville, but I can tell you some generalities around getting it to cashflow. It involves you doing some research. I look for three things in rental market regardless of type (residential, retail, storage, etc.):
A) Vacancy Rate: I look at the vacancy rate for as small a niche as I can identify. If residential, are you looking at 1 bed room apartments, or 4 bedroom SFR? Try to find data for the zip code? North of the interstate vs South? Knoxville has low vacancy of 1 & 2 bed units near the university, but north of the interstate SFRs are occupied less. Know your market.
B) Gross Rent Multiplier (GRM): divide the selling price (retail) or value of a property by the subject's property's gross rents. This will tell you how many months it would take to recoup your investment under ideal circumstances. I know the ideal, will never happen, but it gives me a measuring stick to compare market A to market B. It gives me an indication of the properties ability to support itself. SFRs in Nashville are often more than 100 to 200 range and that makes it a bad market to buy and hold unless you get a GREAT deal. Los Angeles, New York, and Miami are much higher and they will never cash flow. I have bought house in Jackson TN with a GRM of 30, and they cash flow like mad, I'll take all I can get.
C) Employment: What is the unemployment rate? Which direction is it going? Is it a one industry town? There are towns in WV that were very strong 10 - 20 years ago, that died when the coal industry dried up. You need a diverse employment base. If the town runs on just a handful of major employers, if they are publicly traded, get the quarterly reports. Are earning up or down. Did the up the guidance? For private companies, drive by and take a close look. Are they adding new buildings, silos, docks, etc.? Or are their buildings being unused, re-purposed for storage, do they have padlocked gates or otherwise not being used efficiently. Who's hiring in town? If the only people hiring are security and social workers move to the next town.
Do the research.
Good luck
- Asheville, NC · Member since 2016 · 40 posts · 9 votes8y
@Roger Poulin When it comes to employment are there specific industries you look for? I know @JD Martin mentioned the University over in Knoxville. Are there other good industries to look for? Any industries to avoid?
- Realtor · Hermitage, TN · Member since 2014 · 125 posts · 93 votes8y
@JOHN DALEY It is not about what specific industry as much as having diversity. Energy is a strong sector, and should be a good employer. I mentioned coal towns earlier that dried up. The shale oil fields in the Dakota oil fields sprung up over night and created huge opportunities, then disappeared almost as fast. Tech has been solid for decades, but I know people that bought houses near AOL's corporate campus 15 years ago, and many were foreclosed on because people wanted to live closer to D.C.
Avoid industries that are obviously at risk, but remember no industry is immune to competition and innovation.
- Investor · Tyler, TX · Member since 2014 · 10 posts · 9 votes8y
I'm currently investing in a market that sounds similar to yours; 100k population, 90 minutes outside a metroplex . . ..
I look for a steady population growth, solid employment numbers, retail/commercial growth. A university is a bonus
Small/medium markets are unique, town to town. They can be their own bubble. You have to learn each new market, and the local real estate customs. Do as much research as possible, and then jump in. Have a couple exit strategies, in case your first plan goes sideways.
- Asheville, NC · Member since 2016 · 40 posts · 9 votes8yMicah Joseph do you have one real estate agent that helps you out with each different small town or do you go and find a real estate agent from that town that knows the area?
- Investor · Tyler, TX · Member since 2014 · 10 posts · 9 votes8y
Hi @JOHN DALEY. I try to find a good agent, in each specific market. Get agent recommendations from the BP peeps in your area. Ideally, you want someone with a lot of experience, who's willing to work with an investor. Let's face it, we investors are kindof high maintenance. We want the best deals, at the lowest prices. :-/ That often means writing a lot of offers, which takes a realtor's time. Eventually, you'll learn the market, make connections, and hopefully start to land deals before they hit the retail market.
Did you mention what type of investments you're seeking: Flips, Holds?
Get your finances in order. If you have access to cash, look for a wholesaler and make them your friend.
From personal experience: Different markets behave very . . . well, differently. I moved into a "bubble market", from a more diverse big city market. Learn what buyers want, what they're wiling to pay, the real estate resellers' focus. For example, my market is heavily focussed on price/foot, regardless of many other metrics, such as finish quality, and total square footage.
Some things you have to learn by doing, so do your homework, seek advise, and then execute.
- Vendor · Cleveland, OH · Member since 2015 · 46 posts · 14 votes8y
@ Roger Poulin What is your opinion on investing in Chattanooga, and Murfreeboro, for SFR, MF Buy and Hold.
- Accountant · Phoenix, AZ · Member since 2016 · 31 posts · 8 votes8y
Another thing to consider in regards to employers - what if the employer goes under? Will the whole town go under? It could be a potential Detroit situation.
If the economic health of the city/town is dependent on one employer this is something to be aware of.
- Investor · Jacksonville, AL · Member since 2017 · 26 posts · 4 votes8yYou definitely want some sort of anchor business or college in small towns. I invest in a small college town. Houses are cheap, rent is not great but the percentages work out well. Only downside is it costs the same to fix an HVAC in a $600/mo house as it does a $1200/mo house. I'm hoping for the college to continue to grow and drive rents up. Military bases are great as well but if they are ever shut down the surrounding areas can get hit pretty hard. It happened here when Ft. McClellan closed.
- Asheville, NC · Member since 2016 · 40 posts · 9 votes8yMicah Joseph I want to eventually get into buy and hold but right now I am just looking to get started. My goal is to find a market and get my feet wet doing what is successful in that market and then move into my long term goals. Josh Carlegis when it comes to military bases, how do you handle when most of the base deploys and the towns economy slows? I know that was mentioned early on this thread. Also with small college towns, do you focus on student housing or still single families or perhaps multi family? What size college do you look for?
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes8y
You should take a look at the USDA financing. It is quite attractive for small towns. The right financing can make an average deal, unbelievably profitable.
- Asheville, NC · Member since 2016 · 40 posts · 9 votes8y
@Lesley Resnick Don’t you have to live in the home to get USDA financing? What examples do you have of creative financing that turned an average deal into a great profit?
- Investor · Cramerton, NC · Member since 2017 · 336 posts · 198 votes8y
Hey @JOHN DALEY,
Lots of good stuff in this thread already and it seems you are on the right track.
Let me link you however to this blog post which gives a very specific method of analysis and also a forum thread I started based on my own analysis of the market I’m in which is about 2 hours from you.
https://www.biggerpockets.com/renewsblog/2015/05/10/invest-out-of-state-how-to-analyze-a-city/
I personally am a fan of these smaller outplaying markets from large and medium cities. You may not get the appreciation others will see but in the long run they feel like a solid, stable investment if the underlying fundamentals and economics are right.
- Asheville, NC · Member since 2016 · 40 posts · 9 votes8y
@Josh Stack how do I use a CAFR to find out which suburbs to invest in? It seems from just a glance of althe CAFR that the data will tell me how Asheville is doing but not the smaller towns around it. I will have to finish reading thru the CAFR for Asheville this weekend, but I am still a little weary about picking a small town to invest in property, especially when it comes to determining which smaller town is stronger seeing as to how they don’t have a CAFR and I am relying on often inconsistent data that I find on the internet. For example, how can I compare Brevard (I work in a plant of 800 people and know several who commute from Brevard) to Cullowhee which has the University of Western Carolina to Leicester which is commuting distance to a smaller college but is closer to the city of Asheville to Black Mountain which has the HQ of Ingles?
- Investor · Cramerton, NC · Member since 2017 · 336 posts · 198 votes8y
Hi @JOHN DALEY,
You are right, the CAFR is not uniformly available and is town specific. I'm not sure if county governments also issue CAFRs - a quick google search indicates they do.
Specifically on the suburbs point - For instance, when I wanted to make a deeper analysis of Kings Mountain, NC, I could not find a proper CAFR issued by the city. The reporting I did find had some of the data I was looking for but was somewhat lacking. As you go into small towns reliable, up to date data will be increasingly difficult to come by. I think that's where local knowledge simply has to come in and you'll need to leverage people who actually know the area to supplement the research you can do on your own.
A data source I have used generally in my research is Data USA.
Comparison of Brevard and Cullowhee - https://datausa.io/profile/geo/brevard-nc/?compare...
Brevard - https://datausa.io/profile/geo/brevard-nc/
Cullowhee - https://datausa.io/profile/geo/cullowhee-nc/
You can read more about Data USA's data sources here: https://datausa.io/about/datasets/
I also like to use City Data as a supplementary data source.
@Chris Martin linked to this site a few weeks back which I have also found helpful in researching NC areas on the labor market side of things. http://d4.nccommerce.com/Default.aspx
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @JOHN DALEY:
@Josh Stack how do I use a CAFR to find out which suburbs to invest in? It seems from just a glance of althe CAFR that the data will tell me how Asheville is doing but not the smaller towns around it. I will have to finish reading thru the CAFR for Asheville this weekend, but I am still a little weary about picking a small town to invest in property, especially when it comes to determining which smaller town is stronger seeing as to how they don’t have a CAFR and I am relying on often inconsistent data that I find on the internet. For example, how can I compare Brevard (I work in a plant of 800 people and know several who commute from Brevard) to Cullowhee which has the University of Western Carolina to Leicester which is commuting distance to a smaller college but is closer to the city of Asheville to Black Mountain which has the HQ of Ingles?
Most of those towns are not going to have CAFRs, though all the incorporated ones will have audits that you can request. Leicester isn't even incorporated so there's nothing to look at. Black Mountain and Leicester are commuting distance from Asheville so they would be good bets. Cullowhee has WCU and that's about it.
In any case, the CAFR is really only going to tell you the health of the local government, which may or may not mirror the community at large depending on how well it is managed and the economic philosophy of that town. I could show you plenty of mismanaged towns in booming areas (look up Bell, California as an example) and also show you thriving towns in depressed areas.
Skyline Properties - Asheville, NC · Member since 2016 · 40 posts · 9 votes8y
@JD Martin what resources do you utilize when looking at those small towns? Are there certain town documents you look thru? A certain trend you analyze?
- Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes8y
John,
Did a recent blog on why I like big city investing over small city investing, including a look at the long term trends....hope this adds to your knowledge bank.
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