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

[Elijah Williamson]

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-Double wide trailer, new appliance but outdated style (aluminum windows, shag carpet, yellow toilet/tubs.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.