I'm in Central Ohio, and have been looking for a good investment property or two in Delaware OH for nearly a year. I've purchased one, looked at a few, bid on a couple of others. But good deals are getting harder to find.
Where I do see better deals are in very, very small towns in the area - probably 30-40 minutes from Columbus (so there are jobs in a reasonable distance) - but some of these towns have populations of around 2k people, or even less.
Does anyone have any advice/experience on rental properties within such small populations? Is it tragically difficult to find quality tenants? Are rents generally suppressed?
I know different geographies will have different circumstances, but advice on any hazards or pitfalls would be appreciated.
Whiile I can't comment on the small towns part, I can attest to the fact that just because something looks cheap doesn't necessarily mean it's a good buy!
Whiile I can't comment on the small towns part, I can attest to the fact that just because something looks cheap doesn't necessarily mean it's a good buy!
Pam
I have several investments in a small town that I live in, but not quite 2K small. I think something important to keep in mind is that the market for any property you purchase is very small as well. It could be very difficult to unload if things go south.
@Ryan Nelson - how small of a town? And do you find there is anything unique with the small-town rentals?
I have a property in Delaware, and that's about $25k people. It's both a college town and a bedroom community for Columbus, so it has both renters and buyers.
I should mention that the county I am looking in is the fastest-growing in the state, and is projected to grow another 50% or so in the next decade.
I currently have a duplex in a very small town in South Dakota. (1000 people.) It is about a one hour drive to a walmart. But it is about 18 miles from a small college town with aprox 20,000 people. The college has been growing very fast and there is a shortage of housing for students. i find that i can rent out my duplex fairly easy, mostly to 30ish year olds that are sick of the college town atmosphere. I do charge aprox 2/3rds of the price on rent compared to the larger college town to help offset the drive and make it worth there while. I am currently looking at a 8plex comeing up for auction in the small town and believe i can get it for 50k or less. I know the return is great in this town, but i live about an hour away. I have found that the people in this town are great to deal with, and dont need to be baby sat, like in the bigger city that i live in. I have a managemen company in my back pocket that is going to be worth every penny if i get sick of the drive.
Can't get much smaller than Blue Eye, Mo. ! Sometimes, I mean sometimes, you might pay asking price, even pay more than even the owner thinks its worth simply because it is the only place around. It really doesn't matter in the long run since the tenants end up buying it for you! :)
@Pam R. I'm working with a Realtor who specializes in small towns like you're doing. He gets a property for 20k does the necessary repairs and rents it out for $500. You're also able to provide a lease/option although now Dodd Frank has made that more burdensome. Check out @Brian Gibbons link about DF stuff. Its a great resource.
I'm researching what it might take me to get into some of these same kinds of deals and if they are possible further out. Of course the concern is the smaller towns are smaller markets but this Realtor buys them right. He's getting around 2% of purchase price for the rent.
I have 2 resources for Dodd Frank:
http://bundlr.com/b/dodd-frank-safe-act-respa-tila
and @Bill Gulley
The latter is invaluable.
Thanks Brian, but DF is rather off topic here. I think cutting rents by a third is cutting too much. I wouldn't try to subsidize too much gas but look for the advantages of the smaller town.
In this area rents are stable and pretty close. variance is probably less than 15% for comparable housing. That's pretty much through out the southwest area of the state. In other words what rents for 600 here in Springfield will rent for no less than 500-520. There are people who live in Joplin and hour away that work or go to school here in Springfield. Blue Eye is an hour south, at the lake and is less than 300 I think and rents are about the same.....the lake makes up for rents as being more desirable for some.
Not everyone wants to put up with the constraints of city life, Springfield is considering smoke free public zones for example outside, smoke free cafés, 25 mph speed limits in residential areas, really bad drivers from elderly folks driving 25 in a 40 zone and college kids driving 55. Now, you can live in Blue Eye and walk to the café, pizza joint, hardware store, church, garage or the C-store, in about 4 city blocks, you won't get run down and you can smoke inside anywhere if you want to. A different mentality of simple unencumbered living is a plus for some.
I suggest you research the demographics of the regional area, an hour's drive in all directions. Look for job and commercial influences, hospitals, educational influences and recreational centers. and compare your subject area to other similar areas in all directions. Then look at your subject property to comps in other towns. High population areas and small towns or rural areas have a personality about them, Need to understand that personality and the drawing card of an area, then you'll understand the society, social and economic make up and your marketing influences. I know a couple folks in Blue Eye that wouldn't live in Springfield if rents were two thirds less. :)
@Pam R. First off, why do they project the area to grow, is there some kind of expansion with the college or ? What is the demand in the area for rentals? How many homes are on the market, etc.?
There's a lot of factors to be considered. If you're in an area where there is a solid demand, and little supply, prices go up. If there's little supply, it may be time to begin looking at new construction, therefore; buying vacant lots may be a good idea. You then could have houses or units built to buy/hold, or sell them to builders.
@Pam R. You can also check out the city's/ county's CAFR. It will give you all the necessary demographic and financial data of the city which will help you identify or confirm trends.
Columbus Ohio 2011 CAFR: http://auditor.columbus.gov/uploadedFiles/City_Auditor/Reports/CAFR/2011_CAFR.pdf
Thanks all. Some very helpful insights here.
@Karen Margrave - Excellent questions. Central Ohio is the only area of the state growing. Delaware county has essentially become a bedroom community for Columbus. Columbus hosts multiple Fortune 500 and 1000 companies (Nationwide, Chase, Cardinal Health, Wendy's, AEP, to name a few). Lots of good jobs. Columbus also is home to Ohio State, with 50,000 students. Some number of those, like me, stay in the area after graduation. People move to nice, friendly Delaware county - and drive to Columbus for jobs. There are some great school districts, the nicest mall went in here. They just approved an outlet mall on the other side of the county, to start construction next year.
So the demand for high-end new builds is high. Median household income for the county (hold on to your hats) is $90k. I believe you have to make over $175k a year to be in the top 25% of wage earners in the county. (And this is a place where a 2/1 apt rents for $600/month - in a nice neighborhood) 95% of the people have high school diplomas, half have 4-year degrees. And the average commute is 25 minutes - which means they are driving to Columbus, just like me. I live at one of the furthest points in the county from Columbus, and I have a 30-minute commute to my job in Columbus.
You're right about the vacant lots. I'm staying away from that though. Developers already have several thousand lots available (there are 800 available near me, and I'm not in the "hot" part of the county)...they are just waiting for the real estate market to swing back into gear. I can't compete with that - and I need my real estate to generate an income right away.
@Bill Gulley - I agree with you 100%. I live in the country for many of the reasons you describe. What I have to figure out, with all the wealth in my county (which is also concentrated in the southern half of the county), is there a population of renters looking to move a little outside of that realm? Home ownership is 82% in the county. I like your advice - to focus on what gives each town its niche. I'm going to have to look a little beyond the most popular areas to get a good price point, and so I need to see what attracts the people who live there, and would potentially move there - while renting. Great advice. I think I need to figure out where the next migration of people in the county is going to happen.
@Richard Kotten - I think what I'm looking at isn't too dissimilar. Small towns with 20 minutes to a 25k person town, but then we have another 20 minutes to the 15th largest city in the country.
So far it sounds like small town rentals can be a positive. That's good info. I appreciate everyone's insights.