Investing in Rural Markets: The Secret to Real Estate Investing Success?

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I live in a suburb of Rochester, New York , which is the third largest city in New York State (behind New York City and Buffalo).  When I meet other investors, their first assumption is that my investments are in Rochester.  The fact is, I don’t own any investment property in Rochester.  All of my investments are in small towns about an hour away from Rochester (populations of ~3,600).  The next question that I typically get asked is “why don’t you invest in Rochester?”

Benefits of Investing in Rural Markets

There are probably a ton of reasons why people would choose to invest in rural markets.  Below are some of mine.

Familiarity with the Area

I as born and raised in one of the towns that I invest in.  As a result, I spent 18 years of my life there.  I know every street.  I have been in many of the houses as the people living their were friends and family.  I understand the economics, trends and where the jobs are.  I relocated to Rochester after college and as a result it would be much more difficult to learn a market here as well as I know where I grew up.

Less Competition

There are only a few “serious” investors in the areas that invest in.  This means that people I talk to typically have not received marketing pieces from 4 other investors and I do not have to work as hard to find a deal.  In some cases, deals find me because I am one of the few investors in the area.

Properties are Less Expensive

The average property value in my market is $73,000.  There are a lot of properties that are less expensive than this.  My first deal was $26,000 and I was able to scrape the money together to purchase it from saving and selling some stocks.

Good Cashflow

I am able to find properties that cashflow well.  I attribute a lot of this to the two previous points (less competition and cheaper properties).  I can often find properties that generate more that $100/unit and exceed the 2% rule.

Less Urban Issues

  • Regulations – All places have regulations regarding building/changing property, but rural areas typically have less.
  • Taxes – Taxes are typically less in rural areas.
  • Crime – Although crime exists everywhere, it is less prevalent in rural areas and crimes that are committed are often not as serious.

Easier to Build a Brand

Because the market is small and there is less competition, it is much easier to build a brand.  People in my market recognize our signs and logo.  Since we now have the reputation of providing nicer rental properties, we often have a much easier time getting a unit rented.

Bigger Impact

Because the population is smaller, we can have a larger impact on the community with our investments.  We have taken several vacant properties and renovated them.  This not only improves the visual appeal, but it also increases the local tax base and provides more quality housing in the community.

It Works For Our Business

My business consists of a partnership between my father and I.  I focus on many of the business aspects (acquisitions, accounting, marketing).  My father focuses on the renovations and maintenance of our properties.  He lives in the rural area that we invest in.  As a result, he often drives by our properties and keeps an eye on them.  If we have a maintenance request, he can take care of it without traveling far.  He is aware of local conditions, changes and opportunities.

Drawbacks of Investing in Rural Markets

Although there are many benefits of investing in rural markets, there are also several potential drawbacks to be aware of.

Smaller Customer Pool

Rural areas have less people than urban areas.  So when trying to sell or rent a house, you will have a smaller pool of customers.  This could mean more days on the market or more lost rent because vacancies are harder to fill.

Some Strategies are Less Effective

There are a lot of strategies for investing in real estate.  Some strategies may work well in a rural setting (ex. buy-and-hold) while others may be less effective (ex. wholesaling).  It is important to understand what type of investing make sense in rural areas.  Even if an investing strategy works, aspects of a business may not.  For example, marketing on Craigslist may be effective in an urban setting but much less effective in a rural area.

Lack of Support Businesses

Urban areas have a lot of different type of businesses while rural areas typically have less.  So there may not be a property manager available to manage the rental properties.  Or you may need to travel or order services online that are not available in the rural area.  There are also less contractors available to choose from.

Businesses Have Large Impact

Rural area are typically dependent on one or two large employers.  A rural area can go downhill overnight if those businesses do poorly or move out of town.

Small Town Nuances

Growing up in a small town, I can appreciate the things that happen in a small town that don’t happen in urban areas.  News spreads fast in a small town and everyone seems to know about everything going on.  This could mean more people talking about you or your business compared to an urban market where your business is just one of many.

Conclusion

Rural areas present an opportunity to real estate investors, but they can also present some challenges.  It it important to understand the pros/cons related to investing in a rural market and that a rural market is the right environment for your business to have success.

What do you think? Are rural markets the ticket to real estate investing success?
Photo Credit: DigiDreamGrafix.com

About Author

Tom Sylvester

Tom is a serial entrepreneur and real estate investor from Rochester, NY. His real estate investments primarily target multi-unit properties. Along with his wife Ariana, they run a blog called Entreprenewlyweds, which helps couples understand how to manage being real estate investors/entrepreneurs while also maintaining a great relationship and family life.

14 Comments

  1. I am curious as to what you would consider “rural?” Having been born and raised in a Los Angeles suburb, I moved to Mancos, Colorado, population about 500. I would never invest in Mancos as I saw rentals stay vacant for YEARS! I then moved up to the town of Bayfield, Colorado, population 1,200. I built my own house there for $400,000 and then had to come back to California to care for a dying parent. I rented that house for $1,500 a month, not exactly a stellar investment. My point being even a rural town can be too small for a good investment.

    It helps that you used to live there but the negatives of rural investments can be serious. We tried to sell the Bayfield home but prices were in the $200,000 range for that area. We overbuilt because we did not know we were going to have to leave so soon and thought we would be there for many years.

    • Mike – In general I would say anywhere with less than 10,000 people, but obviously that definition is not hard and fast. They key with any investment is to do your research and understand if the market supports the types of investments that you want to do.

      Related to your $400,000 house, that was your personal residence, correct? So it is understandable that it was not a great investment because it sounds like your intention was not to rent it or even sell it. You built it with plans to live in it, which to me I would not consider an investment. You just ended up needing to do that due to the unfortunate circumstances that came up in your life.

      Some rural areas may not be great for investing, but there are also many hidden gems.

  2. Tom,
    Excellent post. This really got me thinking about where I should be looking for properties, although this might mean I’m moving toward Mark Ferguson’s territory…

    This is one of the better and more helpful posts I’ve seen in a while. Keep it up!

  3. Thanks for the insight. Do you have any thoughts on the effectiveness of probate mailings I rural settings? Ive had success in the cities, and am thinking of expanding to rural areas, but am hesitant

    • Kevin – It is tough to make a general statement as each area is different. Once thing that I can say is that most rural areas are closer knit than cities, so you might need a different or more personal strategy in a rural area. I know in my area many of the people in rural areas despise people from “the city”.

      One way to find out, as with all marketing, is to try it.

  4. This is good, Tom, thank you. Although I’m from the West Coast and live here now, I spent a large chunk of my childhood in Rochester, Pittsford to be exact. Went to McQuaid. I invest here, and have been considering investing in Rochester, since it’s an area I know pretty well and prices aren’t like they are here. Thinking of an apartment on Park Ave (yeah right!) or somewhere out near Mendon area. Thoughts?

    • Mr. T – Nice, small world. I know several people from the west coast that invest in Western NY because of the cheap properties and great cashflow. Park Ave is a great area, but it is more expensive compared to other areas as it has grown in popularity over the years. If you like that area, I would recommend looking a few streets over. The properties are cheaper but many people still want to live their since it is close to Park Ave.

  5. All my properties are in rural areas. Great cash flow, nice areas but if the job market is down-OUCH. Like Brandon all of a sudden lots of vacancies. Very good points you brought up.

    • Jim – Yeah definitely. We have recently expanded out to a second rural area to help reduce risk. Our primary market has increased over the past few years as the town is really working on bringing new businesses in. A large company moved into town ~10 years ago and brought quite a few new jobs.

      It is very important to understand the trend of any market, especially a rural one. I was recently out in Wooster Ohio where Rubbermaid started. The 800,000 sqft facility which was also their headquarters closed and moved and it devastated the town.

      Using Rochester as an example, it used to be a thriving city when Kodak and Xerox were successful. The two companies did not adapt to the changing world and laid off a lot of people. Rochester is still trying to recover from that.

  6. Jacob Calbillo

    Thanks for the post! I just came across your article and I had a question. My wife is from a small town in Texas. Its a poor town but only 45 minutes from San Antonio, where we live. Would you consider investing in section 8 housing in low income rural markets?

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