Discussion on investing in "sleepy towns." Is it worth it?

Question

Hi, my name's Elijah and I'm a new investor who has yet to do my first deal. I was born and raised in rural Alberta/Saskatchewan, Canada. I've lived in small towns most of life with populations ranging from 10 people-5,000 people. I currently live in a small town of 1,000 people. I love the rural lifestyle and the sense of community it brings however I'd like to discuss the pros and cons of investing in such small towns as I'm currently struggling with the thought of doing it.

Whenever I talk to another investor from Canada, I ask what markets they like and invest in. Usually I get the same answer. Vancouver, Edmonton, Calgary, and of course, Toronto. Toronto is by far the most mentioned and at the same time the most complained about. Everyone wants to invest there but can't afford it and hates the headache. When I ask why not try other markets, maybe smaller towns or cities, I'm usually told "there's no money outside these markets." yet at the same I time they brag about their great deal in Toronto that's giving the 0.05% back and that the 1% rule is impossible in these markets. I understand there's equity to be had there unlike these small towns but there's no cashflow. As someone starting out, I can't afford to pay a $1,000 mortgage every month while I wait for equity.

I'm personally renting a house right now as it made sense for me a few years ago. Currently however, I'm in the process of trying to buy one. My options are very much limited as there's probably around 100 houses for sale within a 50km radius from me but it seems I can still make at least a quarter if not half of them work well, either as a primary residence, house hack, or investment property. Again, equity isn't here but cashflow is. Some of the better examples are as follows.

-Double wide trailer, new appliance but outdated style (aluminum windows, shag carpet, yellow toilet/tubs. etc) 4 bedrooms, 2 bathrooms, attached double car garage. She wanted $70k for it as it was an estate deal (grandfathers house, he passed away and it passed to her). Rents for $900 a month.

-3 house for sale by owner, willing to do rent to own. All 3 needed some rehab but has was asking $100k for them. That's $33k each. Each one had tenets in them paying $700-$800 a month.

-8 condos, all foreclosures, all 35k each. All needed new flooring and a cleaning/paint job. 2 needed some drywall repair. Rents were $1000-$1,200 a month.

-Bungalow with downstairs suite. Everything works but is outdated. $120k asking price. Rents for $1,500.

These are a few of the better deals I've seen so far. These are all asking price and most are motived sellers so negotiating lower prices seems very plausible. The drawbacks I've found so far is that market appreciation takes a long time, vacancy can be a bit long (1-4 months), and holding costs can add up as the average DoM can sometimes be high (100-300 days) however, I've also noticed from talking with local landlords that once you have tenet, they tend to stay for while as it's a small town and we small town folk don't move often. This aligns with my own relationship with small town occupants. I know people who have rented the same house for 10+ years. Pride of ownership seems to be much more common as well as everyone knows everyone in small communities and you don't want to be known as a slob or have an eviction as everyone will know and won't rent to you.

I've read David Greene's Long Distance Real Estate and I highly recommend it whether or not you plan on investing long distance but I'm personally stuck between where I should go with my career. Everyone says to invest in the bigger markets. Everyone says to not invest in small towns (less then 5,000 people) yet I see landlords in these town with anywhere from 2-15 houses making great cashflow. Markets like Calgary or Edmonton seem flooded with investors that already have a good track record. The agents and wholesalers I've talked to don't want to stray from them as their "sure things." but in my small town of 1,000 people, I'm already know as "The real estate guy" or "The investor guy" and I haven't even done a deal yet. I'm number 20 or 30 in those other markets but number 1 here.

So, I want to pass the question to you guys. What do you guys think about investing in small towns. Is it something you've explored? What did you learn? Do you think it's a wise starting point? I'd love to hear from the BP community on this.

Brianne H. · Answer

@Elijah Williamson I think you're onto something if you plan to stay in the area. If not, property management might with a little different but wouldn't be impossible. I'm pretty sure there was a podcast about a lady in I want to say Saskatoon area? She was doing very well in her market. I'm a little East of Calgary where prices start to come down a bit, but in all honesty I hadn't looked into rural areas very much because of the issues you mentioned, but the price point is better. Where did you find most of those example deals, on the MLS or privately?

Milo Milosovic · Answer

@Elijah Williamson Sounds like you have some cash flow opportunities from your list. A lot of times investors start in their own “backyard” because, well, they are familiar with it. Personally I passed on some smaller town deals recently due to the lack of having access to a Property Manager. If you are in the area your self you could self manage to start, just be aware that it is a skill set in itself. Some people self manage from a far distance, it’s just not my model personally. A PM can make or break your portfolio. Having a small pool of PM’s to choose from is probably a top reason investors stick to larger communities.

I believe the lady that was referred to in one of the replies is Investor Girl Brit. She has a lot of great content on Instagram and was on a BP podcast. She invests in Saskatchewan and makes it work. There are so many different strategies and methods. You need to use the ones that accomplish your goals. Start by defining your goals and needs first.

Elijah Williamson · Answer

I've found PM's in all the towns I looked which is where I get my rent estimates. It's true that the picking are slim and most are inexperienced compared to larger markets but they are there. They are probably my biggest concern however. I'd prefer to have a PM instead of self managing and if I ever move or the current PM isn't working out, I'd be left in a tight spot.

Elijah Williamson · Answer

Actually I found quite a few through the MLS but I use Kijiji quite a bit too. There's usually a handful of places for sale by owner. The example above with the 3 houses for $100k was from there. Facebook occasionally has some good deals too. Haven't had any luck with craigslist, I'm not sure if it's just more common in the US or it's just my area.

Steven Silman · Answer

Hi @Elijah Williamson, I've owned in both big cities and small towns for years, places with tons of appreciation and others with not that much. In my experience, the biggest issues with owning in a small place are sourcing good property management/trades, getting good financing and exiting. More than likely your appreciation will be significantly lower than in a larger community but as long as you go in aware of that, if overall it makes sense to you then you should go for it. Good luck!

Ronald Quaroni · Answer

Great topic Elijah. Something that might scare investors away is the access to traditional funding in smaller centres.

Some lenders in Saskatchewan are hesitant to go outside of Saskatoon and Regina, with very few or none willing to go into towns below populations of 10,000.

Low housing prices, surprisingly enough, can also be an issue. Lenders have minimum mortgage loan amounts. In your example a single condo for $35,000 is something only a credit union could do to my knowledge.

I these things scare lots of folks off. But, as you mentioned if you can pick up properties outright for very reasonable cash offerings or find away to get them financed I think the cashflow is really excellent in a lot of these places.

Bryan Waller · Answer

@Elijah Williamson

Great summary of your opportunities!  The only concerns I would have is that it may take longer to exit the market you’re looking at when the time comes (planned or unplanned), and that if the small town has any key employers or industries that you have a good handle on the future prospects.

The first you can mitigate buy building that portfolio in a way that you could exit with selling a bundle as a functioning business with great cash flow. Sounds like this wouldn’t be difficult.

The second will just take a bit more research and vision. It sounds like you’re already good at that.

Good luck.

Bryan

Josh Arnold · Answer

Hey Elijah,

you bring a lot of valid points and concerns to the table. obviously, as with all investing it is subjective.

you need to clearly define what works for you and why your doing it.. with cash-flow being great it will create the ability to look at other opportunities sooner with cash in hand(remember you don't need to do it all yourself) However, on the flip side of the same coin there are several liabilities. Real Estate Investing in regards to buy and hold simply is looking at the long game. Being able to solidify your investment long term to gain capital gain multiple ways. These being passive appreciation, cashflow monthly and a higher percentage of creating high return with active appreciation(Renos). The leverage you have with the bank on the pay down of a more valuable asset also plays in. People like Edmonton(im from Edmonton)is because its the capital city, population is high and suburbs are thriving, infrastructure is there and to back it up we are supported by being the hub of public sector jobs instead of the oil influenced jobs.(Calgary has gotten hit much harder from a downswing in oil prices and layoffs.) Vancouver and Toronto are talked about because they are very heavily influenced by foreign investment as well as local. (and the views are amazing combined with $CAD being low within international market)

What you need to ask yourself is what your goals are? what are your long term plans? and then build back of pursuing the best way to get there. What are the economic impacts and weigh you options. NONE of us have crystal ball. However, is the best approach investing in multiple properties in your hometown with high cashflow and high vacancies more beneficial and does it out weigh the stress of vacancies when you are getting started? there are several "risks" involved within investing in general, you just need to determine and mitigate them to your liking. At the end of the day, go with your gut.

Discussion on investing in "sleepy towns." Is it worth it?

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