Very Rural Properties

8 Replies

I have money to invest but I'm taking time to formulate my strategy for investing in rental properties.  I live in a very rural area...southern Virginia. In my world, Roanoke and Winston Salem are very large cities.

I live in a town that doesn't even have a gas station. Nothing. I'm wondering if anyone has attempted a strategy of buying rural properties for either rentals or owner-finance income deals, or if it's a "must" to look in populated areas? For me, that would be Roanoke, Lynchburg, Greensboro, Winston Salem, etc.

Look forward to hearing your thoughts.

@John Davis I have a lot of experience in a more urban area of investment RE but have often thought about investing in more rural like near a camp that I own. I think its absolutely possible. The prices are much less but so is the rent. You may have to buy 20 properties and get the same gross income as you would buying 2 in an urban setting. I think its a great place to start. I like the idea of investing close to home for starters before you start to branch out. You will be limited on how big you can grow your portfolio for sure but its a good start.

Alex Deacon, Real Estate Agent
412-613-4435

Tenant quality is usually very low in rural areas, majority seem to have much lower responsibility and intelligence levels. Vacancy rates will be much higher than average. Tenants are more likely to break their leases.

I would consider all possible negative aspects of tenants and multiply risk factor by 2 in deciding to invest in rural areas. Aside from that it comes down to the numbers and understanding that your commitment to managining the property will be more time consuming.

Equate rural properties to C/D class investing.

@John Davis

I know a rural investor from my hometown with 40+ doors. The guy runs a roofing business, can't even turn on a computer and does mortgage amortization tables in his head. Also he's a multi millionaire. He and his wife always drive brand new model year cadillacs.

The key to rural investing is find a  good school district. For people that like rural living good schools are hard to find.  With a more limited pool of rentals it isn't hard to have the nicest ones in the area. Then you can be selective about tenants. 

If you must invest in rural areas I would suggest you look into flips and mobile home parkCadillac. Flips are easier to get into because houses take longer to move with lower population density.

Check the county's census results and see if the area is growing or shrinking. Some rural areas are just dying, so not good for long term plays. 

The best rural locations are unincorporated townships that are close driving distance to jobs and stores. The property taxes are lower than the burbs 5 miles away, with less regulation. You'll find random outcroppings of "McMansions" in plans where a developer bought a farmer's field at auction (usually when he passes) and put in a bunch of cookie cutter yuppie houses.

What is the goal of your investing? Do you just want financial freedom? Maximum returns? Find out your goals and your "why". Then see if rural investing fits your goals. It might not be worth it and driving to Greensboro might be the right answer for you.

Matt - Thanks for sharing that.

My goal is to find the best way (for me) to create a portfolio that produces $4,000/month in NOI. I have about $300K that I'll be able to put toward that. I'd rather just use my money and pay cash rather than mortgage, but not sure if that'll be possible to get to my goals with cash alone.

I don't mind playing the property manager role for the next decade if the properties are close enough. Right now my head is just swimming with the different strategies. One day single family sounds great to me for ____ reasons, the next day duplexs/tripliexs sounds great because ____, then the next day a small apartment building does. I just want to nail my strategy before pulling the trigger; normally I'm the opposite as I'm more of a ready, FIRE, aim person.

Buying with cash will produce very low ROI. There are better investment vehicles with much less work that would produce higher returns and achieve your desired income. Buying cash flow in rental properties will not efficiently achieve your goals. To do so you will need to leverage your investments.

You would probably get higher returns from income funds with a lot less work or risk. Have a sit down with your financial adviser before you start throwing cash at real estate if you are adverse to leverage.

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Thanks Thomas. Like I said, just trying to figure it all out. I like being debt free, but I see how that may get in the way of my goals. Then again, an income fund isn't going to achieve that goal either.

Originally posted by @John Davis :

Matt - Thanks for sharing that.

My goal is to find the best way (for me) to create a portfolio that produces $4,000/month in NOI. I have about $300K that I'll be able to put toward that. I'd rather just use my money and pay cash rather than mortgage, but not sure if that'll be possible to get to my goals with cash alone.

I don't mind playing the property manager role for the next decade if the properties are close enough. Right now my head is just swimming with the different strategies. One day single family sounds great to me for ____ reasons, the next day duplexs/tripliexs sounds great because ____, then the next day a small apartment building does. I just want to nail my strategy before pulling the trigger; normally I'm the opposite as I'm more of a ready, FIRE, aim person.

It sounds to me like you are not 100% on what your priority is (debt free, monthly ROI, end game) and that is why you aren't certain of what strategy you want to embrace. It sounds like you are persnickety and that can be a great thing when managing a fairly large sum of money but it seems that trait comes with a load of worry thus you are reluctant to pull the trigger until you have all your ducks in a row. Your disposition reminds me of an analogy from some military experience: Let's just say I was a warrior in the US military and had some close encounters with not so friendly folks, we trained for a multitude of scenarios constantly, rehearsed over and over, ran drills for various tasks, planned and analyzed, and even agreed on what specific preparations would be made as well as form a consensus on how to strategically maneuver and react to the mission ahead, we over-prepared often, almost to a frustrating level; nearly every single mission we conducted (99%) all the planning and preparation was seemingly useless, as soon as any action stimulus began, chaos ensued, what I like to call organized chaos on our teams part, yet it wasn't the planning and strategic efforts made prior to the mission that enabled us, we always worked through the chaos with the fundamentals, the core efficiencies we had learned and trained, it didn't matter what rehearsal and plan we chose, it was the fundamentals that afforded us the opportunity to weather the chaos and react proficiently. For you, it doesn't matter where or what you invest in as long as you follow principled measures to substantiate the quality of your investments (good cash flow, plenty of reserves, property equity, plethora of information out there for what a quality investment is). Ultimately only you can determine what the "best" way is to invest is and that will be based on what your priorities are. I would ask myself what is my end game, is it really just $4000 NOI? Why that figure what determined that number? Once you arrive at 4K NOI what then, what will you do? Also consider what your exit strategy is, is 4K NOI the number you need to retire? What is your retirement plan? What will you do with the assets at retirement? My point here is that someone like you who is seemingly analytical, needs to determine the end game and reverse plan from there, I think right now you are reverse planning from 4K NOI and that is just a number target you derived for unknown reasons and isn't far enough in your future to reverse plan from to form a long term strategy. I would focus less on the number of 4K and develop a system that allows you to embrace and stick to your desire to stay debt free, that is the one thing I can derive from your posts is that you lean toward debt free; I can guarantee that nearly everyone in real estate during the 08' fallout was wishing they were debt free or close to it, while everyone was pulling their hair out losing their retirement or everything they had because they were over leveraged, a guy who invested debt free was sleeping like a baby and scooping up discounted investments left and right. The best book I ever read put it like this "the borrower is servant to the lender"; which do you wan to be John?

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