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 was 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.
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.
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.
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.
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?
This article is Copyright 2014 BiggerPockets, Inc.