Rural Multifamily, who is doing it?

Rural Multifamily, who is doing it?

Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes

My question is simple. Who is investing in rural America, why are you doing it and what is your experience? Is it your longterm goal or is it a temporary goal to achieve cash flow?

Lets define rural America as towns of less than 20k population without a major metro within 15 miles. 

I will start by saying that I am one of these investors. I have 23 units (a 3, 4, and 16 unit) in a rural town of 15k population. Overall, my experience has been fantastic from the perspective of stability, modest rent growth and long-term tenants. It amazed me how many people thought I was crazy for buying into the small town, but the cash flow and ability to find sellers who are willing to get creative on closing has offered the ability to scale with minimal funds available. 

I have also found that the lack of other options in many of these towns has positioned me to easily be viewed as one of the more or most professional management companies. Its common to only have a few available rental units on the market in the entire town for rent at a given time. 

My preference is to expand to larger markets, and I have added an 8 unit into a larger market which has also been a very positive experience.

My frustration has been getting more opportunities in larger markets that offer decent cash flow via purchasing around an 8cap. My ideal property is $1m to $2m right now. There seems to be a regular flow of opportunities in these smaller towns that I can get a 10cap or 12cap on, solid properties that I can depend on longterm, and provide me with cashflow. 

The biggest con is obviously the microeconomic risks are more acutely affected by changes in employment by one of the local major employers and the issue of lack of opportunity for appreciation since there arent tons of buyers on the market for these assets. 

Would love to get others feedback on their opinion of these smaller towns a long term or short term strategy. 

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Member since 2019 · 1 post · 8 votes
7y

I've done all kinds of investing, including rural investing in some apartment complexes.  The properties tend to offer decent returns and sometimes it is easier to get a deal.  I'm about to sell a 16 unit apartment complex about 25 miles from Waco TX, so meets your definition.  Town is Marlin, TX, about 6,000 people for an amazing price--$399,000 or less than 25K a unit.  It would be a 10+ cap rate.  All units are 2-1.5 townhouse config at about 1000sqft each.  It stays fully rented most of the time until a move out and then it will fill back up.  There is one lady that has been in it 20+ years...  It would be hard to find a deal like this in current markets in a bigger town...  So that is a real deal to answer your question--so smaller towns offer opportunities out there that aren't in bigger ones.  There is some risk to the things you mentioned like large employer closing, etc but at the end of the day, if the size of property is smaller, there is probably always a tenant.

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    @Joel Florek I have a 12 unit in a town of 16,000 that has been providing a great return, and any available units have been filled as soon as they have become empty. We have been giving turnovers new flooring and paint and raised rent quite a bit on new tenants. The existing tenants have gotten small increases. I have been trying to find other buildings in the same town but nothing as good has come up. I have MF in a much more populated area too but the return is not as good. Good to hear about your success in a rural town.

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Bjorn Ahlblad:

    @Joel Florek I have a 12 unit in a town of 16,000 that has been providing a great return, and any available units have been filled as soon as they have become empty. We have been giving turnovers new flooring and paint and raised rent quite a bit on new tenants. The existing tenants have gotten small increases. I have been trying to find other buildings in the same town but nothing as good has come up. I have MF in a much more populated area too but the return is not as good. Good to hear about your success in a rural town.

     Thanks for your input! I have been finding regular opportunities in other towns which means I can build a portfolio but unfortunately it will be spread out... I have been able to push rents a lot on my rural portfolio. A lot more then people said I could do when I bought in. When supply is so low and rents are also low, I tend to think the local operators just aren't testing how high they can go, simply accepting the rents as is. I have gone up $150/month on some of my units without upgrading... Those certainly are an exception but I think it's telling of non aggressive management you can find.

  • Member since 2019 · 1 post · 8 votes
    7y

    I've done all kinds of investing, including rural investing in some apartment complexes.  The properties tend to offer decent returns and sometimes it is easier to get a deal.  I'm about to sell a 16 unit apartment complex about 25 miles from Waco TX, so meets your definition.  Town is Marlin, TX, about 6,000 people for an amazing price--$399,000 or less than 25K a unit.  It would be a 10+ cap rate.  All units are 2-1.5 townhouse config at about 1000sqft each.  It stays fully rented most of the time until a move out and then it will fill back up.  There is one lady that has been in it 20+ years...  It would be hard to find a deal like this in current markets in a bigger town...  So that is a real deal to answer your question--so smaller towns offer opportunities out there that aren't in bigger ones.  There is some risk to the things you mentioned like large employer closing, etc but at the end of the day, if the size of property is smaller, there is probably always a tenant.

  • Rental Property Investor · FL · Member since 2017 · 74 posts · 27 votes
    7y

    This is great info gents. If you don't mind me asking, how are you typically finding these deals? Are they all off market? Do you leverage a realtor? I'm looking to get into the multi family space, and I'm try to figure where to begin. Thanks all!

  • Real Estate Agent · Phoenix, AZ · Member since 2016 · 69 posts · 83 votes
    7y
    @Joel Florek We have been finding great deals in tertiary markets of larger cities. Specifically bedroom communities. Close enough to metro to ensure demand but far enough to still find 10%cap rates. Closing on one next week that is only $35k per door. For us if it's less than 100k population it must be at least within 30 min of the major metro.
  • Rental Property Investor · Phoenix AZ / Kendallville, IN · Member since 2016 · 293 posts · 149 votes
    7y

    I have 14 units in a town of 10,000 and they are doing well. I have 3 duplexes, 2 triplexes and two SFHs. The plus is there are a number of different employers in the vicinity, so job creation is a factor so the vacancy rate is good. The negative is its getting harder to find multi-family units.

  • Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes
    7y

    @Joel Florek very interesting topic thanks for sharing. My wife is from a small town outside of Dallas about an hour or so and I have often considered investing there because tons of folks actually CHOOSE to live there. I know it blows a lot of people's minds who don't live in rural areas. Heck, my father in law owns 30 acres and would never move closer to Dallas haha.

    Definitely will start doing some more research.

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Account Closed:

    This is great info gents. If you don't mind me asking, how are you typically finding these deals? Are they all off market? Do you leverage a realtor? I'm looking to get into the multi family space, and I'm try to figure where to begin. Thanks all!

    Most often the MLS or other listing sites work just fine in my opinion. The larger assets in the small towns dont seem to move very quickly which gives you some time to do an analysis and make a jump.

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Andrew Neal:

    @Joel Florek very interesting topic thanks for sharing. My wife is from a small town outside of Dallas about an hour or so and I have often considered investing there because tons of folks actually CHOOSE to live there. I know it blows a lot of people's minds who don't live in rural areas. Heck, my father in law owns 30 acres and would never move closer to Dallas haha.

    Definitely will start doing some more research.

     One of the things I have heard again and again from managing my units in Iron Mountain MI is that people are moving back to the area once they retire or decide they want to have kids. So part of me wonders that as more baby boomers retire, will there be a larger transition from this cohort moving from cities back to rural areas... Interesting thought and one which I will try to find some research on. Clearly not going to be a huge wave, but even a slow trickle into these small markets adds a lot of pressure to the limited supplies. 

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Kurt K.:

    I have 14 units in a town of 10,000 and they are doing well. I have 3 duplexes, 2 triplexes and two SFHs. The plus is there are a number of different employers in the vicinity, so job creation is a factor so the vacancy rate is good. The negative is its getting harder to find multi-family units.

     Very nice! I hear you on that. My challenge is that a lot of the multis coming up for sale need a ton of work and the payoff just isnt very exciting for how much time I would have to put into it. Sometimes no deal is better then a bad deal but it sure would be nice to keep doing good deals every year! 

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Marjeanne Fields:
    @Joel Florek We have been finding great deals in tertiary markets of larger cities. Specifically bedroom communities. Close enough to metro to ensure demand but far enough to still find 10%cap rates. Closing on one next week that is only $35k per door. For us if it's less than 100k population it must be at least within 30 min of the major metro.

     That is a great rule of thumb. I always find it funny when you go into some of those small towns and wonder why the heck there is a building boom of really nice single family homes... its those willing to drive a bit to their jobs but want a slower quiet life. Thanks for sharing your criteria! 

    Out of curiosity, is there a unit count that you typically like to shoot for with your deals? Do you invest in a lot of these smaller markets to build your portfolio or just sticking with one or two?

  • Investor · Branson, MO · Member since 2016 · 101 posts · 146 votes
    7y

    @Joel Florek Congrats on your successes! I also invest in these towns. I currently have a 48 unit in a town of 5k people. I have some section 8 tenants and my crime level is minimum. Mainly retired folks who have grown up in the community and are on social security. I personally like these markets because the returns are steady and there are plenty of low income tenants that will be in these communities for many years to come.

  • Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    Great topic, @Joel Florek. The downside IMO is that long-term appreciation is going to fall far below more populated areas. Over 20 years you'll see nearly 4X the appreciation from a market with 3% appreciation vs. 1%.

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Garrett Hawk:

    @Joel Florek Congrats on your successes! I also invest in these towns. I currently have a 48 unit in a town of 5k people. I have some section 8 tenants and my crime level is minimum. Mainly retired folks who have grown up in the community and are on social security. I personally like these markets because the returns are steady and there are plenty of low income tenants that will be in these communities for many years to come.

     Thanks for sharing Garrett. Great to get the perspective of someone who has a larger property in one of these small towns. I have certainly gotten the experience of lots of retired folks who are on fixed incomes and don't want to take care of a house anymore. I have only had one government-subsidized tenant who I have since asked to leave the property. Haven't ventured any further into that tenant base although I have had a lot of inquiries. 

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Jaysen Medhurst:

    Great topic, @Joel Florek. The downside IMO is that long-term appreciation is going to fall far below more populated areas. Over 20 years you'll see nearly 4X the appreciation from a market with 3% appreciation vs. 1%.

     I do hear you on that and its always the big thing I am frustrated with. However, I look at it from the perspective of goals. Right now my goal is cash flow, financial independence, to be achieved via minimal funds. The minimal funds makes it tough to scale in the hot markets while I have been able to find a lot more creatively financed deals via these smaller markets with better cash flow per dollar invested. Then transition to hot markets to try and get an appreciation play long term... One you drink the high cashflow coolaid its tough to walk away from though... Every decision is a trade-off and that's why I am so curious to hear other opinions. 

  • Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Joel Florek, you're very clear on your goals, which is huge! 

  • Real Estate Investor · Union, NJ · Member since 2016 · 30 posts · 6 votes
    7y

    @Joel Florek

    Congrats on taking action/executing on your goal. I like your strategy of sticking with cash flowing properties, then moving to more populated areas when able.

    The only issue (other than appreciation) is your exit of the property if need be. How long do assets of the size you’re acquiring turnover in your target areas?

    Julian

  • Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    Regardless of if the major employer leaves or if it’s a small town or a big one . The reality is people will always need a place to stay and housing crisis is a real problem in this country . The average young person doesn’t view home ownership as their American dream anymore and most of them can’t qualify for a mortgage anyways . The boomers are downsizing from their big homes and getting health issues that force them into apartment living no steps

  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    @Joel Florek A few months before I scored my 12 unit in that 16k population town I put in an offer on a similar 12 unit property in a 55k population city. Price was just over double and the rent was about 15% more total for the year-100% increase in price and 15% more rent. I am so happy my offer was rejected. I am retired, so for me it is either cash flow or become a Walmart cashier! Do I think my money is safer in a big city? Yes and no; we have seen some fairly decent sized cities become very vulnerable in a hurry.

  • Rental Property Investor · Grand Jct, IA · Member since 2011 · 17 posts · 5 votes
    7y

    Have a four plex in a small town of 3500 people that as operated like clockwork, made improvements ,raised the rents; purchased on contract with low down, and has great cashflow, and long term happy folks.

    Will only invest in small towns, lower taxes lower overhead, tenants stay longer and take care of property, I'm also involved in a another eight plex in the same town with a couple other investors.

    Have SFH's also but have started to sell those off and buy only value added Multifamily properties here in central iowa.

    I'm looking for a private investor to help fund my latest 16 unit apartment complex find, needing funding to make happen, again small town, lots of good renters the place needs cleaned up, thats what I enjoy doing and providing good clean safe housing for my tenants.

  • Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    @Bjorn Ahlblad

    Hey Walmart cashiers get 10% off their groceries !

    I’d like to work at Home Depot . Wear the little orange vest and read the back of the package to people whilst pretending to be an expert .

  • Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Joel Florek  Glad to hear you're finding success! I'm in a market slightly bigger (25k population) and share very similar pros and cons.

    Pros:

    • Steady deal flow
    • Lots of tired landlords
    • Become well known easily and easier to become the "go-to" guy.
    • Less competition
    • Steady rents

    Cons:

    • Limited number of contractors
    • Limited number of large 30+ unit deals
    • No property appreciation
    • Slower flipping speeds
    • Slower closing speeds due to lawyers constantly being bogged down

    All in all I'm very happy here, and will continue to grow my portfolio here.  However, I'm eventually going to branch into a new market where bigger multi-family deals are more available

  • Jacob PhillipsPro Member
    Investor · Mid Missouri · Member since 2018 · 63 posts · 14 votes
    7y

    @Joel I live in a small college town of 13k in mid Missouri and am looking to do the same thing! I am 26 and brand new to the game with no properties currently to my name and no capital to speak of. What kind of creative financing have you been able to use for your deals?

    There’s a group of four duplexes in in my town that the seller is asking $650k for and it seems like a crazy thing to even consider but I can’t help but be curious as to how I might be able to tackle that (if it’s a good deal, that is).

  • Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
    7y
    Originally posted by @Joel Florek:

    My question is simple. Who is investing in rural America, why are you doing it and what is your experience? Is it your longterm goal or is it a temporary goal to achieve cash flow?

    Lets define rural America as towns of less than 20k population without a major metro within 15 miles. 

    I will start by saying that I am one of these investors. I have 23 units (a 3, 4, and 16 unit) in a rural town of 15k population. Overall, my experience has been fantastic from the perspective of stability, modest rent growth and long-term tenants. It amazed me how many people thought I was crazy for buying into the small town, but the cash flow and ability to find sellers who are willing to get creative on closing has offered the ability to scale with minimal funds available. 

    I have also found that the lack of other options in many of these towns has positioned me to easily be viewed as one of the more or most professional management companies. Its common to only have a few available rental units on the market in the entire town for rent at a given time. 

    My preference is to expand to larger markets, and I have added an 8 unit into a larger market which has also been a very positive experience.

    My frustration has been getting more opportunities in larger markets that offer decent cash flow via purchasing around an 8cap. My ideal property is $1m to $2m right now. There seems to be a regular flow of opportunities in these smaller towns that I can get a 10cap or 12cap on, solid properties that I can depend on longterm, and provide me with cashflow. 

    The biggest con is obviously the microeconomic risks are more acutely affected by changes in employment by one of the local major employers and the issue of lack of opportunity for appreciation since there arent tons of buyers on the market for these assets. 

    Would love to get others feedback on their opinion of these smaller towns a long term or short term strategy. 

     I love this strategy you're using - as a city guy (mainly have lived in LA and NYC and invested locally), I've always wondered about the potential of some of these more rural areas. Seems to me like if it's within an hour's drive of some sizable employers, or a metro area of 150K or more, it could be a good play overall, in the sense that there are jobs for folks. I hear great things, from a cash flow standpoint, about investing in the smaller, outlying towns from major Texas cities, and I think the same is true for CA, if you go deep into San Bernardino or Riverside counties.

    One concern I do have, and I think you alluded to, is the concentration of one industry in a metropolitan area. In following the recent GM layoffs in Ohio (near Youngstown I believe), it seems like there are some smaller outlying suburbs that will be hit badly by this. I think in the Midwest especially (not to pick on the region), this seems like an issue. 

    Assuming that isn't a huge issue, seems like a good play for cash flow - with the kind of cap rates you're getting, it's hard to say no to more deals! Of course, the city does offer appreciation and ease of selling in future, so diversifying makes sense, but as long as these generate strong cash flow,  sounds like you should continue to expand. 

  • Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
    7y
    Originally posted by @Julian H.:

    @Joel Florek

    Congrats on taking action/executing on your goal. I like your strategy of sticking with cash flowing properties, then moving to more populated areas when able.

    The only issue (other than appreciation) is your exit of the property if need be. How long do assets of the size you’re acquiring turnover in your target areas?

    Julian

    That is a concern. I plan to have an exit take a few years if need be... not ideal especially if there is an issue. Certainly a big negative. Interested to hear others experiences or thoughts.  

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