Rural Markets
Hello All,
new user on BP. Ive been "creeping" on forums and listening to podcasts for a few months now and have decided to become more active. :-)
I live in a semi-rural area. With cheap home prices and low cost of borrowing... Is there any money to be made in rural / semi-rural areas? Any advice any one can offer?
I have some experience as a landlord. Im mainly looking for more passive ways of building sustainable long term wealth, not interested in the overnight success or endlesa days rehabbing homes, as this would be supplemental income.
Thanks and look forward to learning more!
Adam
Adam Heim -
How are things going in your rural community? Find any good deals? Learn any rural marketing techniques?
Hey guys,
Doesn’t look like much activity on your question here. I’ve started searching rural as well. I own one property in Lakeville MN that is doing well. Looking at multiple doors with the next purchase.
Theres a podcast from November 2015 or 2014 about rural investing. Plan to listen tomorrow.
If either of you have made any progress on rural, I’d love to hear it.
Thanks, Mitch.
I love rural. I own 11 properties in a town with a population of 7,000.
I am doing very well financially and all of my properties cash flow.
All the standard numbers apply. Find houses with a GRM of under 8. Mine are all under 6. Do you research and find out what the property will rent for and make sure there is a need of the rentals. Many small towns have a huge need of rentals do to the lack of new buildings. Be sure you dont price the home out of the local economy. I wouldn't be able to rent a $150,000 home. They are not affordable by the local working class. Same issues you find in a big city.
Thanks Gordon. I’m looking at 2 duplexs tomorrow. I’ve accounted for all expenses on the bigger pockets tools including capex etc.
After all said and done, 18-29% cash on cash returns. Roughly $165 per unit.
1 duplex is completely redone. Everything done in 2011. (19% coc) owner paid $35k, completely redid everything and is now listed at $99,500.
The other needs exterior paint and a roof soon (29% cash on cash). Not so excited here.
Lack of comps is killing me. Knowing I can get that coc return is great, but if I ever want to sell and buy a building with 20+ I want to be able to sell.
Thoughts?
Mitch Brunette I’m not a huge fan of rural. Part of the reason is that I’m an out-of-state investor and, well, good luck if the single PM in town doesn’t work out :)
I had my PM look at an 8-unit building that was pretty rural. Her feedback to me was...they look great but I have no idea how long it will take to re-rent these at turnover. So maybe “vacancy” wouldn’t be high but “economic vacancy” would be.
But one thing to keep in mind is your timeline. If the “if I want to sell” is 20 years down the road, who cares? I mean we all “should” care but good luck predicting two decades from now. If it’s “a few years” then I wouldn’t buy.
A better approach for you to take might be looking at what DOES sell. Where can you find comps? What kind of properties go to “pending” in 30 days. See what those cash-on-cash returns turn out to be. At least then you know you can get out of it (likely at a loss) if you have to.
Thank you, good insight. Especially w/the 1 PM in town commentary.
I’m definitely thinking more about 3-7 year exit strategy into bigger opportunities. May as well stack cash and buy bigger in 3-5 years.
You may have given me my answer. Thanks!!
I manage my own properties. There is no legal property manager in my town. You have to look at the vacancy in your town. I average 2% vacancy per year. I typically rent within 3 days. As I said I have a waiting list. If I had the down payments I could rent another 3 to 4 houses within 24 hours. I have only had one house vacant more then 3 weeks ever. It was vacant for 3 months due to property damage.
Its all about picking the right small town.
I never looked at the GRM approach, just took all the expenses, etc. and came up w/the COC numbers above. I looked up GRM/calcualted and the property I like out of the two is a GRM of 5. I know the rents because one unit is currently rented, and the main level unit is a 3br vs . the 2 br so I just looked around the area and found what apartments and a few others are renting for in addition to the local PM in town. There's one legit PM in town, and then a handful of people that operate out of their homes. The town is 19,000 people and I'm familiar with the town because my wifes family farm is just 10 miles west and I'm there farming 2x a year.
So Gordon, I'd ask this. Would you buy to hold? Would you buy to hold for less than 7 years knowing you may want to sell (probably not need to sell).
$20k down, no rehab costs, 1 renter in place for 4 years that has taken increases of $25/mo each year, a GRM of 5, COC of about 19% (about $165 per unit after all expenses), all capex work was done 6 years ago or less (there's nothing to do until something breaks) , and owner occupant is a busy body handyman type. Vacancy in the area according to a city study (performed by 3rd party) is 5.8% and that is down from just over 6% 5 years ago. Population 19,000 people and has been 19,000 give or take for 50 years. So it is rural in the sense that it is 115 miles from the down town metro, but it is a larger town, surrounded by very rural 5k and smaller population towns.
I'm going to see these places in about 5 hours, still excited to see them, feel out the neighborhoods they are in specifically and start potential negotiations. I know there IS a price worth it, and based on your GRM comment, maybe the purchase price is about right.
@Gordon French I never heard of the GRM before. Definitely adding that to my list of analysis considerations.
Do you purchase rentals in your area or do you purchase rural property out of town?
@Mitch Brunette I like to invest in Rural areas. I follow a lease option model which works really well in helping people get into homes that wouldn't qualify at the present moment. I manage the properties, or better said I have my assistant manage the properties, and the management is pretty light since the people in these properties are working towards ownership.
Also, we have used this approach with 3 of our properties that have guest houses. We lease option to one tenant for a 5 year period of time and they are responsible for the rent on both properties because they are looking to buy the property. Then they rent out the other property or have a family member live in it. They put up money up front for the lease option - usually about $3900 - $5000 for the right to buy the property for a certain amount within the 5 years. So basically you are helping your renters become investors through this process.
As long as we have rehabbed the property sufficiently and vetted the prospective tenant-buyers thoroughly, we don't need to budget for cap-ex, repairs, vacancy, or turn-over and it minimizes realtor fees on the sale side.
This is a strategy that you may want to consider.
@Ashley Cote I moved to a small town where I could afford to get into rentals. Starting out big cities were more then I could afford. My homes are all in town, but the town is considered rural. It is a farm community with a very divided income. Majority are low income. Few wealthy farmers.
@Mitch Brunette Im not really into selling. I have been thinking about getting into selling to make some more cash for down payments. I got into real estate for the long hall. My goal was to retire at 55 with 100,000 a year income. I have that... I can likely retire at 50. Until I got to that goal I would not sell. I bought everything based on cash flow.
I would sell if I needed the cash for a better investment.
I would sell if I thought the market was going to change and I would loose out on the rents.
I wont sell because my property has gone up in value. So has everything around it thus I really gain nothing.
I wont sell a GRM of 5. I work very hard to find those (I have several) and they are basically unheard off. You should see a very nice cash flow from anything in that range. Even with higher risk loans.
I really like towns like your describing. That are more stable to me. The large swings you see across the effect the towns less. However... these owns can fail and are subjected to issues with the city and the few business that keep the town going Buy when the town is low not high after some new business comes in. If your getting the property cheep enough you can survive the lows the town might see.
@gordon Thanks again, I've tried to explain this concept to friends and they just don't get it!
"I wont sell because my property has gone up in value. So has everything around it thus I really gain nothing. "
Ok, so I hear you loud and clear, if my GRM is a 5 or below and the cash flow is good, make a decision.
Thanks again, and it's amazing how quick this community will jump in to help someone out.
Hey @Mitch Brunette, I know I am responding to a post that was years ago, but your comment caught my interest as I am looking to invest in MN lake country and figured I would see where you are at now with your rental(s) and if you had any tips for a rural MN investor.
Looking forward to chatting with you,
Alysia
@Alysia McDonald
Good Morning! If you want to shoot me a private message I can send you my phone number and would be happy to chat in a little more detail.
I purchased one single-family rental in the small town market and it has gone really well for about 15 months and I have no concerns about it going forward.
I am potentially going to buy three or more houses down there by the end of the year however I am looking at a different business opportunity at the moment that is holding me back temporarily!
Thanks for the reply! Sent a request your way and hope to chat in the future.