Buying rental property in SMALL TOWNS?
Bradley, IL · Member since 2013 · 16 posts · 1 vote
Do any investors/landlords buy properties that aren't in high population areas? For example, I recently bought an investment property in a prime area,monthly profit $350.
The benefits of that particular rental are: low vacancy rates and quality tenants.
The drawbacks are: higher priced notes and a lot of competition when buying.
There are many nearby cities that have lower priced homes, and less competition. The cities I am referring to are in safe areas and good school districts, just not as populated.
I would prefer to buy in these areas because I have far less competition and the note I'd carry is much smaller.
I realize the vacancy rate will be higher, but by how much? I would assume you can get just as good of tenants, but I'm not positive about that either.
What's your opinion? Any investors buy in both high and low population areas? What's your experience?
I live in a small town of 2500 people about 30 miles from a larger city of 110,000. I have houses in the larger city all the way down to a house in a town of 200 surrounded by cornfields.
Anytime the house goes for rent in the town of 200 my phone won't stop ringing. Only difference is the rent is not quite as high as in the larger city.
I also have a house in very desirable suburban town of about 15,000 that boarders the larger city. I am able to charge a premium for this house since everyone wants their kids in this school district.
I actually prefer the small towns over larger cities. I can have a handyman put a new roof on for me, permits are a thing that is only required in the city, and background checks are easy (walk down the street and talk to the sheriff). Plus if someone skips out on you, go knock on their momma's door and she will find them right quick.
I am actually looking at several small towns outside of my normal investment area for some of the reasons you mentioned (less competition, better deals). One town I especially like due to a high profile employer in the area the provides a ton of good, well-paying jobs and it looks like they will only be expanding for the next 20-30 years.
Of course this also presents risk, because if this one employer goes down, the market there will be in trouble. I will not over-buy in this are due to that, but I am very comfortable owning several rentals there.
I do not believe the vacancy rate is necessarily higher in small towns. It really will depend on the demographics, as the small towns I am looking at have similar vacancy rates as the larger towns and cities.
James,
I appreciate your response to this topic! The towns I am looking in have been established for awhile, but remain small town living.
The towns I am looking into are diversified as far as employers, which is a plus.
I'm intrigued to here other responses.
What size town are you talking about by the way? The definition of small varies for one location to another.
Tricia Haggard
I'm in Peoria IL. No first hand experience.
But talked to a couple people. One guy was in Peoria investor. City of Peoria kept adding more requirements for landlords. He only invests in smaller towns outside Peoria.
I talked to a guy last night. He was trying to find something to rent in Pontiac. He said he couldn't find anything.
I would think in smaller outlying towns your vacancy rate might be lower because once you got a tenant the turnover might be lower although up front might be harder to fill. and your tenants might be better quality.
Be interested to hear about what happens.
James, I am talking approximately 5k for small town. The "hot" areas by me are popluation 15k, rent out quick for top dollar.
Kirk, I was thinking the same as you. It may be more difficult to get someone in the unit, but they're more likely to stay once their there.
Tricia Haggard
I focus exclusively in a "smaller town" (~21K). While not quite as small as the 5K you mentioned, it is small enough that I can become somewhat expert in the market (sales and rental).
There are several larger cities nearby but I shy away from them because 1) there is more than enough competition and 2) it may be more difficult to master the market.
The smaller towns I was talking about range from 15-40K in population whereas the primary city, is about 300K.
I don't understand the reluctance of investors to either invest or lend in "small" towns, or "rural" towns. We are normal people down here in fly-over country. Yes, many of us go to church every Sunday, and most of us have guns (and some of us even carry our guns to church). And yes, we drive trucks and say "thank you" and "please". And many of us grow our own food, cut our own wood, pick our own cotton, or whatever, but we are just normal people. We believe in God and country, believe in the Biblical teaching on creation, don't believe in catastrophic man-made global warming (nobody has proven it to be true), we eat dinner at Granmas, play golf for 10 bucks, catch cat-fish on a trot-line, and teach our children to shoot guns. Sorry, I guess you hit a sore spot with me. We're just normal people.
Bryan,
I myself prefer small town living(and people), but like every other investor, we are in business to make money.
It's important to not make decisions based solely on getting a house for cheap, but if there is a rental market there.
Just because you and I enjoy small town living does not mean I will see a large ROI.
P.S I'm pretty sure everyone loves country folks!
You guys sound strange :)
I live in a small town of 2500 people about 30 miles from a larger city of 110,000. I have houses in the larger city all the way down to a house in a town of 200 surrounded by cornfields.
Anytime the house goes for rent in the town of 200 my phone won't stop ringing. Only difference is the rent is not quite as high as in the larger city.
I also have a house in very desirable suburban town of about 15,000 that boarders the larger city. I am able to charge a premium for this house since everyone wants their kids in this school district.
I actually prefer the small towns over larger cities. I can have a handyman put a new roof on for me, permits are a thing that is only required in the city, and background checks are easy (walk down the street and talk to the sheriff). Plus if someone skips out on you, go knock on their momma's door and she will find them right quick.
Is there a "like" button on here for Ryan B's answer?
Actually, there are some depressed small towns around me that I avoid. But the truth of it is, if I lived there and new the markets, there would probably be good opportunities in those towns as well. Most of my investing is done in a county with a population of about 25,000 (for the whole county). And an unemployment rate of 10%. But people still need a place to live.
Bryan L., the vote button is essentially the "like" button on BP.
It's a tough business in a small town. My worst performing rental is in a town of about 14K people. Labor is outrageous because there are so few qualified people to do any work they pick and choose their jobs. The tenant pool is smaller and good tenants find a place they like, they don't move. It's a small town so there's no reason to move. Values don't increase because of weak demand. Yes, there are always exceptions to the rule, but the rule is that it's a challenge investing in a small town and I know that first hand.
If one of my California rentals goes vacant, I can put it on the market and get 10+ applicants to chose from in days. I have my pick of trades people. I can get multiple bids for every job.
Probably because very small towns might have fewer employers. If one large employer goes under, there might not be another. Then you worry about unemployment in the city and whether you can find a tenant who can afford it.
And very small towns can mean fewer people moving into the town, so vacancies might not fill as fast (that is, unless there aren't many or even any other available rentals, then you're golden). People might not move as much. If their family has lived there for generations, they might own the old family house/farm and not need a rental. Sometimes it's harder to find workers too.
Property values might not go up as much if the demand isn't there. Just look at, say, Brooklyn townhouse prices 20 years ago vs. now. You could've made a huge bundle if you had bought some of the Brooklyn ghetto back then and sell now for millions after areas have improved. If you buy property in a small town, I haven't seen many property values go up so astronomically.... unless there's demand and development in the small town (then it's no longer a small town to me). I have seen some suburban middle class homes double in value over 20 years. I'm sure it can happen in small towns, just likely not into the millions.
I suppose some landlords might avoid small towns because they don't know how to get tenants as well there -- advertising seems different in very rural areas than in urban cities. Plus they might not know local handyman. Maybe they just don't want to have to drive into another rural town to check on their rental property. Who knows.
I like small towns. Small college towns seem like the perfect place to landlord... small enough to know the handyman's family if he screws up, large enough to find new tenants (college kids). Plus, you can get good deals on affordable properties compared to, say, NYC or LA.
Aaron Mazzrillo
If one of my California rentals goes vacant, I can put it on the market and get 10+ applicants to chose from in days. I have my pick of trades people. I can get multiple bids for every job.
Aaron: Is the 14K town where you own your worst performing rental out-of-state? I want to make sure we are comparing apples to apples. CA small towns to CA big city. In my experience and that of my buyers, decent rentals in CA small towns and rural desert areas do very well. I'm always curious why Californians go to Georgia or MI or PA to buy the same $30-50K house you can buy in many parts of CA. During the Bubble I could understand it, as CA prices in even small towns were so skewed and rents were still low. But prices and rents makes sense again in many of my areas (assuming no excessive special assessment taxes.)
K. Marie Poe - Yes, a property on the east coast. Typical newbie mistake. The prices in CA seemed so big that I started buying out of state because "it made sense." Once I really learned to do the business, I realized that it might make sense, but it doesn't make much more than cents at best. I just got off the phone with a seller of a 4 unit apartment bldg. She is asking $1M. To the typical newbie investor, this number is hard to wrap the head around. But, if a credit partner who qualifies for FHA financing, is brought in, or seller financing is negotiated, this now becomes a very attractive deal. FHA loan limits in OC are $1.4M on 4 unit bldgs and this property's units are all rented for about $2,500/month. The game is to buy it right and shore it up with good financing. It isn't about the size of the numbers. This one deal beats the pants off a year's worth of deals in any midwest/east coast state.
I definitely agree that I would rather buy a nice rental in CA than anywhere out of state. If small numbers are the hang up, I think affordable, cash flowing rentals comparable to anywhere out of state, could be found in many of the cities in CA. An astute investor could do very well in some of the small cities along the 99 or the 5 north of the bay area. Just take a look at what Fixer Jay has done up in Redding, Reggie Lal in Sacramento, and Tony Alvarez in Palmdale/Lancaster. Which also goes to show that the whole 'tenant friendly laws' argument is just an excuse, not a reason to invest out of state. Good tenant screening will help any investor avoid most of that nonsense regardless of which state they are in. In 10+ years of management, I only have 5 evictions, none of which were contested, and 2 of them are tenants that came with the properties when I bought them.
And I can get to Sacramento and home without leaving the ground before a California investor could get to the east coast and back.
and here we are 6 years later... I am so curious as to see if any one found success in small town investing.
I invest where I live, and that means rural. Our personal home on about 90 acres is 5 miles from town - population 2100. Except for the house at the end of our driveway, all of our rentals are inside the city limits of that town. The nearest large city is Springfield, MO, and is about 75 miles away.
Yes, there are challenges here. We have a lot of poverty to deal with - median household income is under $20,000. There are few large employers, so if we lose one, it's a big blow to the community. Everybody knows everyone's business - there is no such thing as anonymous investing here! The nearest big box stores like Menard's, Lowe's, etc. are in Springfield, 75 miles away, so you don't just pop in when you've forgotten some little thing for the rehab you're working on.
There are also benefits to investing in a small town. Everybody knows everyone's business, so it's not hard to check up on potential tenants. The mayor lives across the street from one of our houses, the chief of police lives next door to another, and the fire chief went to high school with my kids.
We are in need of housing, so City Hall practically bends over backwards to help anyone who is providing quality rentals. Though rents are lower, so are house prices, taxes, and other operating expenses.
We could probably make more money investing somewhere else, but we would be miserable. Besides that, we make enough to live comfortably, so why would we need more? We live where we invest, where the cost of living is low, so it works for us. Those who live in high COL areas may not make enough from investments such as mine to consider it a good income.