Is Small Multifamily in Rural Markets Worth It?

Question

I recently ran numbers on a 6–7 unit deal in a rural town. Cash flow looked great on paper, but I’m cautious about resale and tenant demand. Has anyone here invested in small multifamily outside of metro areas? What was your experience like?

Jaycee Greene · Answer

Hey @Brandon Lee, welcome to the BP Forum! Do you know if the property is located in a n area defined as "rural" per the USDA? I ask because if the answer is yes, your financing options will be limited.

Caleb Brown · Answer

Rural markets are solid. The good part about them is vacancy is low, longer term tenants, typically landlord friendly and you aren't competing with a million other people. There is some things to keep in mind. With it being rural getting vendors or PMs can be tough. Once you go beyond 45 min of a decent sized city it is hard. Most vendors won't travel out that far, if they do it will cost you a little more. Another part is appreciation is typically low or stagnant unless a development is coming to the area or there is a larger city where people are moving out of.

David Krulac · Answer

I've looked at rural properties.  Some of the criteria that I looked at are:

1. Is population increasing or declining?

2.  Is the school population increasing or declining?

3.  What is the unemployment figures for the area?

4.  What are average property values and average rents?

In one area that I looked the high school graduation class in 1964 was the same number as 2019.  That indicates that there not much growth and the general population also remained the same which indicated that young people are moving away because there are no jobs in the area.  I also found that real estate prices were lower but so were rents.  An investor I know bought a 4 units, it was rented and needed work for $25,000.  Today with lots of upgrades and improvements they still rent a 3 br unit for $750.  Fifty miles away in more densely populated areas I'm renting 3 br units for $1,350 to $2,100 and a 4 br for $2,500.  But of course I paid a lot more than $25,000 for those properties.  I did buy a 12 year old 4br 3 bath house for $2,050 rent per month from the first tenant after paying $30,000 for the house, but that was an extraordinary purchase well, well below market.

Gene K. · Answer

It's good if it's a long term hold for cash flow. However, many lenders will not lend on rural properties which will shrink the number of buyers when you're looking to sell.

Sultan Ali · Answer

Brandon, I’ve looked at small multifamily in rural markets too and you’re right, on paper the cash flow often looks stronger than what you’ll see in bigger metros. The trade-off I’ve noticed is usually on the back end: slower appreciation, smaller buyer pool when it’s time to sell, and tenant demand that can shift a lot if a local employer closes or relocates.

That said, if you’re buying mainly for cash flow and you feel good about the stability of the local economy/employers, rural deals can work well. If you need strong resale or easy refinancing options down the road, metro areas usually make that smoother.

Curious what your long-term goal is with this deal? are you looking more for steady income, or to build equity you can roll into something else?

Arman Ahmed · Answer

@Brandon Lee

Rural small multifamily can cash flow great, but the trade-offs are real: smaller renter pool = longer vacancies, and resale is tougher with fewer buyers. If you’re buying for long-term cash flow (not appreciation) and there’s solid local employment + good PM support, it can still work.

Alecia Loveless · Answer

@Brandon Lee My area has one town with close to 10,000 people and then there’s maybe an additional 25,000 people in small towns within a 50 mile radius.

I have rentals in the largest town as well as in many of the small towns which might only have populations of 1000-2000 people.

I do very well with my rentals. I’ve found that while deals are often hard to come by once you get them it’s easy to rent and keep rented and 98% of my tenants have been high quality.

If you know how to market them when it comes time to sell it’s also easy to find a buyer. The only slight difficulty might come if they’re 2-4 units and you need to find comps for your appraisal. But a decent appraiser will know how to handle this.

Make sure you keep good records and try to minimize operating expenses. You don’t necessarily have to maximize rents but you should definitely keep them competitive.

Be sure to look at population growth and if possible try to find some reliable job growth information. Know your markets.

I wouldn’t recommend investing in a dying area where population and job growth was severely stagnant or falling.

Min Zhang · Answer

I’ve looked at a few of those myself Brandon, and on paper the numbers always seem stronger in smaller towns since prices are lower, but I’ve found the bigger question is exit strategy and tenant base. In metro areas, you usually have more liquidity when it’s time to sell and a deeper renter pool, while rural markets can sit longer both on the leasing and resale side. That said, some folks do well if they’re buying for pure cash flow and holding long term.

Just curious, are you leaning more towards long-term buy-and-hold with steady income, or do you want flexibility to sell and recycle capital down the road? Happy to keep the conversation going!

Is Small Multifamily in Rural Markets Worth It?

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