Small Town Real Estate: 2020's Best Investment Opportunity

Bob Dylan had it right: The times, they are a-changin’. A pandemic, economic challenges, and civil unrest tend to do that. The year 2020 has forced people to deal with social, spiritual, emotional, and economic changes. It’s also challenged people to explore ideas they might not have considered six months ago—like where they live. Consider this a silver lining if you’re interested in small town real estate.

Small Town Living Is Back

After the second industrial revolution at the turn of the 20th century, people began flocking to cities. American cities grew dramatically—we wanted to be closer to work opportunities and live somewhere where we could reap the benefits of large-scale industrial projects (think: indoor plumbing, electricity, accessible schools, and medical care).

Today might usher in a reversal of this trend, as Americans move back to small towns and rural areas in droves for the first time in over 100 years. COVID-19 has been a huge catalyst for this change.

The pandemic has demonstrated:

The rat race is not all it was cracked up to be
Work doesn’t need to happen in an office building
Losing the daily commute is not a bad thing
Focusing life around home reduces expenses
Family-centric living has unexpected benefits
Social distancing may become permanent.

Our rearranging priorities may create an unprecedented change in the housing market. What a great opportunity for the savvy real estate investor!

Housing Must Accommodate the “New Normal”

As more companies allow employees to work from home, more and more Americans may consider a dramatic housing change. They’re no longer handcuffed to big cities, and as a result, many may come to see the advantage of small-town life—more square feet, larger dining rooms, quiet property, smaller communities, and more space between them and urban metro areas. I expect workplace flexibility coupled with historically low interest rates will lead to an increased interest in new ways and places to live, and you may find more real estate agents advertising listings in the “small city.”

This is led by the shifting mindsets of three different generational cohorts.

Millennials

As the segment of the American population with the largest buying power, it makes sense why we’re paying attention to Millennials. Here’s what you need to keep in mind: A strong interest in green spaces and low-impact footprints makes living in high-density cities less appealing. They may not be interested in having nearby homes; alternatively, they may want to be close to large cities—without being in the city proper. Smaller towns with easy access to major metros may see a nice boost.

This shared sentiment among Millennials could make this group a strong growth driver in the small town housing market.

Gen X

The majority of real estate articles may be focusing on Millennials, but keep an eye out on Gen X, the cohort in its peak earning years. The proverbial, oft-forgotten middle child, Gen X-ers are becoming empty-nesters and considering retirement. This generation has the most flexibility and freedom to invest their hard-earned money. And they’re realizing: We should work to live, not live to work.

As such, Gen X-ers want homes that provide access to careers and proximity to family. For some, this might mean owning several smaller properties in different locations, allowing for mobility. Although many have rented or leased after the 2008 housing market crash, a Gen X homeownership comeback is underway. And when they settle down, it will probably be away from the hustle and bustle of urban locations.

Baby Boomers

A “silver tsunami” may disrupt the housing market as the post-World War II generation retires, moves, and downsizes. When they’re not moving in with their Millennial or Gen X children, expect this cohort to look for small, easy-to-care-for spaces—without giving up their favorite comforts. This will dramatically change housing inventory and the makeup of major American cities that were once traditional retirement hubs.

Less-developed small towns that get smart can start catering to this well-funded, decisive group. Unlike the Silent Generation’s isolated retirement home trend, retired Baby Boomers may prefer smaller, self-contained communities populated by a variety of generations.

Small towns and communities that offer active and walkable neighborhoods with social clubs, community and activity centers, pools, walking trails, fitness centers, health care, and more will have strong appeal. Boomers want to stay busy and social while remaining independent, which makes re-conceived small-town living very appealing.

Targeting Different Generations in Small-Town Housing

Engaging these evolving cohorts requires new types of creativity. The needs of the buyers should be met with a deep understanding of a world changed by COVID-19 and an appreciation for the distinctive housing desires that manifest as people age.

Ask the following questions to give yourself an edge when considering a potential investment purchase:

Who’s the target?

Each cohort has different motivators. Make sure you are clear on the type of person you will be trying to attract. This will help you decide on the location, style, and amenities you will need to include in your new project.

What’s missing?

Focus on the types of housing developments that are currently missing in the marketplace, keeping in mind new trends in ways of living.

If you’re targeting Millennials…

The call of the wild and appeal of outdoor spaces is creating demand for co-living environments set in nature—particularly those featuring small homes and common work and play spaces.

If you’re targeting Gen X-ers…

Remember, these folks may no longer be tied to an office. They may be interested in moving around more frequently. Consider high-end Airbnb rental units in remote locations.

If you’re targeting Baby Boomers…

Embrace the need for a low-maintenance community and access to great services, like hospitals. This makes zero lot line homes ideal.

What’s on the “wish list”?

Small-town living doesn’t mean low-end living. For building projects, identify the unique wish list items that will make your property stand out from the competition. From mountain views to green building materials to ocean access to state-of-the-art technology, make sure to incorporate at least two distinctive offerings to help clinch interest.

Capitalizing on Post-COVID-19 Real Estate Opportunities

The pandemic is causing many property owners to reevaluate their investment. Because of this, maximizing your portfolio requires keeping an eye out for an increase in the availability of worthy properties, as well as undeveloped land (for brave souls) in less congested parts of the country.

Like the 2008 recession—often linked to the “subprime mortgage crisis,” which saw home loans granted to borrowers with poor credit histories—the economic challenges introduced by the global pandemic are uncovering faulty or weak financial arrangements. Some property owners may either be forced to sell to avoid foreclosure. They also may simply become skittish about the future, making them open to divesting.

From commercial lots to multi-unit dwellings to vacation rental properties, some owners are finding it hard to hang on with reduced rental demand. As such, the property market will soon be flush with opportunities.

When times are tough and situations are in flux, a smart real estate investment can yield long-term dividends and become a stable income generator. For the prepared investor with elasticity in their finances, these challenges offer prime real estate opportunities for pennies on the dollar—especially if you’re willing to look in small-town American.

Scooping up underdeveloped or partially developed land and waiting out the current economic challenges could mean a boon just a few short years from now. There are immediate benefits, too—like the steep tax breaks often available for owners of these types of investments. You’ll want to look at writing off operating expenses related to the properties, as well as depreciation costs on the potential rental value.

To meet the needs of a newly emerging housing market, we need to change our old ways of thinking. Seeing buyers in generational cohorts will allow us to embrace targeted creative possibilities and select smart investments that can yield strong value for our bottom line. Prime real estate opportunities require a new way of looking at the market.

Are you ready?

What other trends do you see emerging in the wake of coronavirus that investors should pay attention to?

Share in the comment section below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.