Real Estate Investing in a Small Town

7

I made my first foray into Ely, Nevadasmall town real estate back in 2005.  Having been used to large suburban markets, I soon discovered that this was a different animal.  Many large markets had run amok with rampant speculation that was driving real estate prices into the stratosphere and I wanted no part of the risk associated with investments in those areas.  Through networking connections I had learned of a Nevada mining town that was experiencing an economic revival and, as a result, had a severe housing shortage. Despite the demand, prices had not climbed much but rents were high.  An investor’s paradise, or so it seemed.

The Perfect Storm

The town of Ely, Nevada had gone through years of economic decline when a mine, its primary industry, had shut down.  People left the area in search of work and houses were abandoned because there were no buyers.  Many of those who remained did not have the money to maintain their houses and they fell into a state of disrepair.  The future looked bleak for the area.

Fortune eventually shined on the area when the mine was bought by a much larger operation and re-opened.  Other industry came to the area in the form of a state prison and, not one but two, proposed power plants.  Suddenly workers were in demand but there was very little available housing.  I was one of the first rehabbers to enter the area and others soon followed.  Opportunity was everywhere.

Learning To Adapt

 On the surface you would think that people would be happy to see investment in their town.  However, it soon became apparent that outsiders were resented.  The townspeople were looking to protect their way of life and didn’t like the intrusion of the city slickers.  In many ways I could understand how they felt.

Many investors had come to the area and attempted to use their big city tactics and quickly found that they didn’t work.  The pace is slower and there wasn’t much competition between contractors since there were so few of them. To be successful in this area you had to learn how to fit in.  Those who were able to adapt thrived, those who couldn’t soon left the area.  The small town way of life isn’t for everyone.

A Different Atmosphere

It took a little getting used to but I came to love the area. The way of life is much more relaxed, the air is cleaner and the people have turned out to be terrific.  The area has seen tremendous changes in the three years that I have known it, yet in many ways it is the same as it must have been fifty years ago.  [See an article that I had published in The Ely Times ]  

Experience is the one thing you can’t get for nothing.Oscar Wilde 

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7 Comments

  1. With all the hustle and bustle in big city real estate markets, this home town business sounds nice and perhaps the setting most tired city slickers would like, if they could reform. I find that many people can not afford the high prices of the city and turn to the outskirt areas and the result seems to be booming in those areas and the as they grow it expands to further and further from the town center making great investment opportunities with less risk!

  2. st george rentals on

    The thing about small towns is the people for the most part trust each other. The hard thing is there is not as many people that are looking for homes in small towns.

  3. It seems like some small towns especially resort town are never affected by the “trends” and economic struggle. Whether its Palm Beach, Jackson Hole or Aspen and Telluride they always seem to come out fine.

  4. Great post.

    I have been looking to acquire a few apartment complexes in small towns as well.

    Coming from a large city, I was uncomfortable at first due to the small population (below 10,000). However, I found that they had much higher cap rates since there was less competition compared to the cities/suburbs. This was was the primary reason why I was interested.

    The key is to find a solid property management company that you can rely on. Interview a few of them in advance so you have them lined up before making offers.

    Below are 5 questions you should be asking yourself when investing in a small town:

    1. What type of industry is in the town? What is the unemployment rate? Is it growing or on a decline?
    2. Is there a large hospital in the area?
    3. Is there a larger city nearby?
    4. Any universities nearby?

    Personally, I prefer to buy and hold in these markets for cash flow whereas in the larger cities i would include a 3-7 year buy and sell strategy where I would be selling at the top of a sellers market cycle. Just my opinion. Keep it simple and take action folks!

    Thanks,
    Swat

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