Investing in small towns

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Investing in small towns

Andrew Brown
Real Estate Professional · Central City, NE · Member since 2016 · 12 posts · 3 votes

Hello everyone - hoping some of you with experience investing in small towns might be able to weigh in here and provide some guidance.  I moved to a town of 3,000 people in Nebraska about three and half years ago.  One of the problems I've come across when running numbers is that rents in town really seem to be capped.  Decent two-bedroom units generally go for about $500-550/month, and three bedrooms don't seem to fetch much more than $600-650.  Short of buying something very cheap that needs few repairs (maybe they're out there), I find it really difficult when using the BP calculators to come up with anything that makes sense.  There's a housing shortage across most small towns in Nebraska and mine is no exception.  However, this seems to be reflected much more in sale prices than market rents.  Just curious if any of you have encountered a similar plight and found creative ways to put deals together.

Switching gears a bit, I drive past the county courthouse almost daily.  What kinds of questions should I ask if I wander in there looking for leads for potential deals?  

I welcome any insight.  

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  • Jim Goebel
    Real Estate Investor · Des Moines, IA · Member since 2016 · 922 posts · 533 votes
    7y

    @Andrew Brown

    Hi Andrew my take on this from observations with others doing this within 10,000-70,000 person towns is that as you allude to the top end of the rent is kind of capped.  You have less people in these towns kind of 'snow balling' wealth and really getting ahead, as compared to a growing and affluent metro, all else being equal.  This caps rents, which has a huge impact on what strategy you take.  I think you can make it with a higher volume strategy in terms of acquisitions in these towns.  That's not for me.  I'd be careful.  A lot of people assume that if they have resourcefulness that everything else works out.  Not true, your numbers still have to work.

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  • Chris LohmeierPro Member
    Investor · Lincoln, NE · Member since 2015 · 32 posts · 16 votes
    7y

    Andrew, I invest in one of the small towns not too far from yourself (~1,200 people). I bought a property that was being mismanaged and had the rents set at a level for really quick turnarounds just below the town’s market rate. I went in and raised the rents to a higher than market level, everyone was on a month to month lease, and started fixing the issues. Tenants fled in droves, the good and the bad. I finished my repairs and started marketing in ways the old landlords didn’t, they only used a flyer in the coffee shop. It took me a total of two and a half months to get back to profitability. I have had to adjust rents back down slightly (1/5th of the raise) to get shorter turn arounds but they are still above the standard for the town and I have a much better class of tenants than before. I get away with it because frankly most of the other landlords in the town are terrible at upkeep/repairs/screening and I offer a much better home environment. Don’t be afraid to try to improve the old system.

    With that said, I have also seen the other side of this. A certain small town with 2-1 houses selling for ~$25k with $5k-$10k in needed repairs that are currently renting for ~$350. On the surface this would seem to simply be a case like above of undervalued rent. Looking deeper though you’ll find that the city owned utility service cost averages out to $350 a month. I would never take on one of these, there just aren’t the jobs in small towns that will allow you to increase the rent by much in this case. Dig deep enough to find out why the rent is where it is. If it’s just poor landlording, then go ahead and take a shot at setting the bar higher, but if there are real underlying problems with the numbers, look elsewhere. 

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  • Collin Fridley
    Reedsville, WV · Member since 2018 · 7 posts · 2 votes
    7y

    Hi Andrew! I have two small single family homes in Reedsville, WV... Current population is 600, but we're close to a college town of 50,000 people. I've noticed that there is a tight rope to walk. You don't want to get into to low rent market because your tenants will be walking, talking disasters. However there is an upper limit because folks around here will just go and buy a house! We've purchase very modest 2/1 houses with a small yard and garage/carport and they've been pretty steady. We get about $650/month. I would be hesitant to buy 3/2 houses because I just don't think you could keep a good tenant for very long. 

    Best of luck!

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