Des Moines, IA · Member since 2017 · 8 posts · 4 votes
I currently reside in Des Moines, IA and aim to purchase small multi family properties 4-20 units. I believe that Des Moines is a great market but many others are also starting to notice and invest here. Because of this I have expanded my scope to also look to other midsize cities in and around Iowa such as Omaha, Cedar Rapids, and the Quad Cities. During my property search I have come across many properties in small towns. Small towns have the pros and cons such as they are cheap and there is less competition but also obvious cons such as lower rents and uncertain volatile futures due to jobs coming or going. I do not plan on investing in small towns but it is sometimes quite enticing due to low prices.
What are some of you folks doing in regards to investing in small towns such as strategies or horror stories.
Thanks in advance!
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
I love small towns. If you own rental property in a small town a few things happen. When you post it for rent, you are the only show in town. There is nothing available to rent in a small town, so you corner the market and get a lot of response. Secondly, once you get a tenant in your property, they stay forever. Why? Because there isn't anything else available to rent. I get higher rent in small towns because people will actually bid up my asking rent in order to get the house.
one of the big challenges in a tertiary or smaller market is to find a good/qualified management company. If the town is within a city that has jobs, then it is less concerning. My one concern would be if for instance If the city was around 30 minutes from a job center. If the economy goes into a recession, the tenant base may decide to move closer to the jobs to save on gas/commuting expenses. We own units in a submarket on Knoxville, and they are performing very well.
As long as you can show the investor why the market is worth targeting, then it should not be hard to convince them to invest there.
I do like the smaller markets for one reason. They tend to be not on the institution's radar, and you usually can command rents that are fairly close to the larger market, while expenses will be lower in the tertiary market
Hi Sergio, first off there's a big difference between a market that's 100k population compared to that of 10k. Either way, when presenting the property and the market to your potential investors focus on showing them why it's a good/strong market, not convincing them as to why it's not bad.
Be sure to be prepared for any common objections/beliefs an investor may have in regards to small markets. Some points I suggest touching upon are:
- Population growth
- Multiple large employers
- Diverse employment opportunities
- Demand/low vacancy/rent growth
If you can show investors the above points and that although small, the market is stable and growing, you should not have a difficult time convincing them to invest.
Hi Brandon, when looking at deals in these smaller markets there are several things you want to consider. A few of the most important are:
1. Employers. Is there one major employer? A small town can quickly go under if the one employer goes out of business or moves. There must be a diverse mix of larger employers.
2. Demand. Small towns of course will not have the demand of the larger markets. Talk to property management companies or brokers that manage and find out what the vacancy rate is in the town. Get local people’s opinion of the rental market. What we do sometimes to test demand is run a sample rental ad on Craigslist and see how many replies it gets. Keep in mind Craigslist may not be the primary marketing method so you may actually need to put "For Rent" signs out on the streets leading up to the property. We have hired “jobbers” on craigslist to do this for us as well.
3. Property management. As others have said there may not be many, if any, property management companies in town. Sometimes you can find brokers that manage as well and some will do a great job for you on smaller properties
As usual, Rod makes some really crucial points NOT to be ignored. But, I am a contrarian at heart and like to be defiant. This is where I have found MUCH MUCH more opportunity. SO,consider this. In a small/medium market (500K people in the Metropolitan Statistical Area) a small town (6000 people) has the BEST if not one of the top two school districts. EVERYONE fights to get into the school district and it has a huge 200 acre development going in.
Is this small town a bad place to rent? NO! everyone is fighting over your property. Low crime, diverse employment, and a down home feeling with a small commercial district with cool breweries, pubs, and stores is SERIOUSLY attractive. I just moved away from one such small town and I'm selling my portfolio as I moved back to Chicago and would love to be able to be closer to my properties. If anyone is looking into small town investing...let me know. I even have a fantastic and inexpensive property manager/CPA/Investor who has been tending to it once I moved.