A Look at the Rewards, Risks & Rules for Investing in Rural Rental Properties

by | BiggerPockets.com

Ever thought about rural or small town investing?

It’s a tempting proposition. Imagine the idyllic rolling fields, quaint historic towns, and charming places where everybody knows everyone else’s name. Perhaps the local real estate even offers strong returns?

Venturing away from cities has its benefits for real estate investors. Let’s take a deep dive into them before turning the leaf over to look at the risks and rules for success for rural investing.

Download Your FREE guide to evicting a tenant!

We hope you never have to evict a tenant, but know it’s always wise to prepare for the worst. Navigating the legal and financial considerations of an eviction can be tricky, even for the most experienced landlords. Lucky for you, the experts at BiggerPockets have put together a FREE Guide to Evicting Tenants so you can protect your property and investments.

Click Here For Your Free Tenant Eviction Guide

Bucolic Bliss: Advantages of Rural Investing

Less Competition

Do you know how many real estate investors there are in New York City? Tens of thousands. What about in Shady Acres, Iowa? Maybe one or two, if any. (Okay, so I made up Shady Acres, but you get the idea.)

Less competition is a recipe for higher returns. Who is going to bid against you at foreclosure auctions? Who is going to get into a bidding war with you over Widow Wilson’s run-down estate that needs major renovations?

You can often score killer deals in rural areas because you aren’t competing with a hundred (or a thousand) other investors and landlords all looking to get in on the same neighborhood.

Less Expensive

According to Zillow, the average home price in U.S. urban areas at the beginning of 2016 was around $269,000. In rural areas, it was around $170,000.

The price per square foot numbers were even more stark: Urban areas clocked in at $198, while rural areas logged only $108—nearly chopped in half.

That means that investors will have less money tied up in any given deal and lower cash barriers to invest.

Less Regulation

Statistics are less handy for comparing regulation in urban versus rural areas, but where statistics fail, common sense prevails. Is anyone going to argue that the landlord-tenant regulations in rural Idaho are more strict than those of San Francisco? Or New York City, Los Angeles, Chicago, Baltimore, Seattle, Portland… need I go on?

Related: USDA Rural Development Loan: The 100% Financing Loan That’s Not “Just for Farmers”

Red, blue, conservative, liberal, socialist; however you feel about the role of government and regulation, the fact is that tighter landlord-tenant regulations exist to protect tenants, not landlords. Less regulation on landlords and real estate investors makes life easier for them.

rural

Lower Property Taxes

Property tax rates tend to be higher in urban areas compared to rural areas.

For example, in the Mid-Atlantic region, the average property tax rate in urban areas is 2.11%, compared to 1.55% in rural areas.

That’s $1,120/year in higher cash flow—almost $100/month!

Less Turnover

Residents in rural areas and small towns tend to move less frequently than the residents in trendy urban neighborhoods. That’s great news for landlords in rural areas, who might rent to the same couple for 30 years!

Statistics comparing rural and urban turnover rates are surprisingly scarce, but anecdotal evidence suggests that housing turnover rates are substantially lower in rural communities.

Lower Crime Rates

Rural areas and small towns have lower crime rates than cities. It’s common sense, but it’s worth pausing to look at just how wide the gap is.

As of 2015, the violent crime rate in cities with populations over 250,000 was 734.2 (crimes per 100,000 residents). Compare that to small towns with populations between 10,000-24,999, which had a violent crime rate of 269.8. In other words, the violent crime rate in cities is nearly triple the rate in rural areas!

Is the difference in crime rates only for violent crimes? Nope. Cities with over 250,000 residents had a property crime rate of 3,359, while small towns of 10,000-24,999 people had property crime rates of 2,461.

Easier Networking & Brand Building

In small towns and rural areas, everybody knows everybody else. That makes it much easier to build a brand and a reputation in your investing niche.

It’s also far easier to identify key people who are “in the know.” For example, maybe Linda down at Linda’s Diner always seems to be the first to know about news around town, or maybe Bill with the county council is the guy to talk to about county zoning and economic development plans. These local linchpins are much more obvious and easier to befriend in small towns.

As you get to know some key people around town, they’ll become brand ambassadors for you. For example, when Constance sits down at Linda’s Diner and says she needs to sell her home within the next 30 days “or else,” who do you think Linda will tell her to call?

Easier Pulse-Taking & Trend Projecting

As alluded to above with Councilman Bill, it’s easier to understand the economy and real estate market in smaller towns and rural areas. Often, the local economy is based on a staple industry, and the town’s fortunes are tied to that one industry’s investment in the area.

Small real estate markets also tend to be more stable. They may not spike up through gentrification, like a suddenly-trendy urban neighborhood that the artists and coffee shops and hipsters all moved into overnight, but they aren’t likely to collapse with an inbound crime wave or suffer urban decay either.

Stability and easier forecasting make it much easier to predict long-term rental returns, making investments more attractive.

Risks & Rules of Rural Investing

More Dependency on Single Industries & Employers

Simple economies may be easier to understand, but they can also be much more susceptible to collapse from losses in one industry.

Remember Michael Moore’s Roger & Me? Well, don’t watch it; it’s tedious and preachy, but it’s a case study of what happened in Flint, Michigan when the auto manufacturing plant closed. Spoiler alert: Bad things happened.

Be extremely careful when investing in any town that’s too heavily dependent on one industry for its success.

Less Demand for Housing

Sure, there’s less competition, but the subtext might read “less demand.” And with fewer housing turnovers comes fewer people moving at any given time.

All of that can spell trouble for vacant rentals or properties listed for sale.

Any local real estate agent can tell you with about 30 seconds’ research what the average days-on-market numbers are for home sales and rentals. That’s a good starting place, but sift through recent listings to get a sense for what’s moving quickly, what’s not, and why. Talk to local landlords if you can find any, and get their take on housing demand. Satisfy yourself that you won’t have a property sitting vacant for six months as tumbleweeds blow by.

Thin Industry Support

How many property managers service the area? How many real estate agents? How many contractors? How many lenders fund deals there?

Real estate investors rely heavily on industry support services. It’s no surprise that one of the first challenges faced by new real estate investors is building a team of trustworthy, dependable support servicers. But options may be few and far between in the hinterlands.

Do your homework on who’s offering local support services, and double check that you have reliable, professional options for every member of your “mastermind team” that you’ll need.

Related: The Pros and Cons of Investing in Small Towns and Rural Areas

Lower Density Means Longer Drives

In urban neighborhoods, investors can walk the streets. They can walk by houses faster than investors in rural areas can drive by them.

There’s a convenience to higher-density areas. Small towns can still have manageable densities, but prepare for long drives and other inconveniences that come with spread-out rural districts.

Expect Well & Septic

There’s nothing inherently bad about wells and septic systems, but they come with their own maintenance costs for property owners. Build these costs into your CapEx or maintenance budgets if you buy a home on a well and septic system.

Know Thyself—and Thy Market

Rural and small-town investing is a different animal. It has some unique advantages over dense urban areas, but it also comes with a different set of risks.

As in any kind of investing, know what you’re investing in and invest in what you know. If you grew up in rural Iowa and you know the towns, the people, and the local economies and their rhythms, then it could be a perfect niche. Or if you move to a small town and fall in love with it, perhaps it’s a win waiting to happen.

But if you’re a city slicker at heart and are only considering rural areas for strategic reasons, think twice before opening your checkbook. You need to truly understand an area before investing in it, and that level of understanding requires spending plenty of time there.

As my mother always said, “Do what you love, and the money will follow.”

Have you had success investing in rural areas or small towns? What tips and tricks can you share? Or maybe you have a cautionary tale of woe to pass along to your fellow investors?

Comment below!

About Author

Brian Davis

Brian is a rental investor with 15 income properties, who provides free video training to help everyday people start earning passive income at SnapLandlord.com. He's also the co-founder of SparkRental.com, which provides free services & education for landlords. His rental management is almost completely automated by now, allowing him to travel the world (his current home base: Abu Dhabi).

17 Comments

  1. “tighter landlord-tenant regulations exist to protect tenants, not landlords. ” Those regulations came about in response to pervasive terrible landlord behavior. I do not worry at all about even the tightest landlord regulations because I believe in treating tenants as I would want to be treated when I was a tenant.

    • Rick Grubbs

      That is correct. The free market punishes bad landlords and rewards good ones. That is exactly why we don’t need government bureaucrats to impose unnecessary “fixes” which burden all landlords with an overly regulated business environment. Regulations kill growth and healthy self-regulating free market economics.

    • Brian Davis

      Hi Katie,
      Degree of regulation may not be a difference that matters to you personally as an investor, but it’s still a difference, so it’s part of the conversation about rural vs. urban investing. In my home town of Baltimore for example, the landlord-tenant regulations are so heavily weighted in favor of tenants that it takes 4-9 months to evict a tenant who has stopped paying their rent. That’s not the case in some neighboring counties. But ultimately regulation differences are a fact of investing, and whether we agree or disagree with them, we need to recognize that they exist.

  2. tim boehm

    I think one of the major points you didn’t mention was leasing the land. Recently looked at a rural house that I could have rented out easily at $800 a month but the 60 acres of land rented out at $1500 a month and it was good farm land, the package???? 200k!

  3. Jerry W.

    Brian,
    Great article. One thing to consider in rural areas is to look for niches just like in other areas. I got into a niche for awhile of renting out to the new teachers who came to town. They were basically pre-vetted by the school district, they had a steady income, and they would usually rent for at least one year to 3 years until they got tenured. As all of my houses were full i did not rent to any teachers last year. Another thing you touched on is word of mouth. Once you get a reputation for buying or renting in a small community folks will tell other folks. A good portion of my new tenants come about as a result of word of mouth. Another benefit is you know the local folks by reputation. If someone is unreliable or has a drinking problem you often hear about it by just asking folks. The big drawback is that it can be difficult to turn some folks down as you know their parents or friends etc. You can also run into some dumb town politics as well. It can also be very difficult to get really good contractors at a reasonable price. Good contractors can be booked up to a year or two in advance. You often must take a chance on new guys, some work out and others do not.
    Thanks for taking the time to share your experiences.

  4. Adam Schart

    Great article, though I will disagree with the presumptions of less competition, at least per capita. I can only speak for my own eastern Colorado, western Kansas area, but landlording and house flipping is still big business, usually by local residential contractors, real estate agents, or other business owners. Most are $450-$700 / month homes, and would never meet an out of town investor’s cashflow requirements, but they manage themselves (property management is virtually unheard of) and have large quantities. I would say most towns have 3-4 “main” landlords in town. We also see a lot of foreign investment in farmground in our area, especially from Germany. I guess as long as they sell before we run out of irrigation water in 50 years.

    • Brian Davis

      Every market is different, no question. But even in areas like you mentioned that have a few primary players, just knowing and being friends with the other 3-4 investors in town can have some benefits. Friends tend not to get into bidding wars with each other!

  5. Michael Beeman

    I really enjoyed this article. My brothers and I run a sawmill/logging business in rural Illinois. I am a new investor there and I recently purchased a 3 unit multi family that needs a little work, and a 6 unit apartment building next to an oil refinery, in an area that has extremely low vacancy rates. I will have about 12-13k per door in them. So, at 5 and 600 dollars per unit rents, the cap rates look pretty great. What I was considering doing was trying to push a little bit higher than some of the local rents, bc vacancy rates are very low in this area. Most of my fellow investors are telling me that they’re filling units in just a few days, which prompted me to think rents might be to low.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here