How Are Small Town Rental Units?

Question

You all are great and thanks in advance for your input!

So I live near a small town that has a small community college, a Walmart, a Sheetz, and a couple other little places in it. Our population is just over 5,300 with most of them being renters and not owners. There are a couple little houses (2bed/1.5bath) located close-ish to the college so I was wondering if they would be worth getting as a first time investor. They are selling for about 29.9k and the average rent (for 2/1) is about $487 (according to Renotmeter.com) which is about right.

The one house I'm looking at has over 1300 square feet and doesn't look that bad (Compared to the rest of the town). I haven't gone to view the property yet, though.

Should I consider this? This small town doesn't have much to offer and I don't want to only have renters when it's college season.

Here is a link to the house I'm looking at if anyone is curious.

Thanks everyone!

Dakoda Spencer · Answer

@Jassem A.Thanks for the reply! I was considering offering 20K, doing some light repairs, and renting it out for about $575-$600. I don't want to count on renting it out above market, though. So all the numbers need to work as if I can only rent it for about the $487 mark. How did you find the Tax information on the property? I'm still new at this and filling in the gaps. Thanks!

Brandon Schlichter · Answer

All my rentals are in smaller towns (One is 13k population, other is 21k) and I wouldn't have an issue at all with buying in a 5k or so town. In the areas I invest in , there are significantly fewer investors compared to the large cities even when you figure out the number of good candidate properties that come on the market. Overall from what I see it has depressed multi-family units on the small side (Duplexes and triplexes) and made it very attractive to invest in.

Jassem A. · Answer

@Dakoda SpencerAsk around. Someone that already works as an hourly subcontractor or maitenance person will probably be able to offer the best value if they are motivated.

Michael Ablan · Answer

Id start make calls to 3 or 4 contractors and ask questions, look for reviews online and let me them know what your trying to do. Its best that theyre on the same page as you from the beginning. Write down everything each one points out and recommends, then go through them and see who fits your game plan the best. You could also call up the listing agent and ask for a referral. Also, I would bring your brother along anyways. An extra set of eyes is always a good thing.

Christina McManaway · Answer

I couldn't tell from the link, is it already rented? Realtor.com might have more info for you. I would find out what the utility costs are and if the rate you see on rentometer include utilities. I've noticed in my research that rent price varies based on if and what utilities are included. You'll want to find out what that range is.

Dakoda Spencer · Answer

@Sara Abernethy, I'm 22 years old and this will be my first RE purchase. No I don't have much money and this is why I'm looking at these properties instead of ones that may be in nicer condition. I just want to get my first deal, learn from it, and move on to bigger and better deals. Thank you for your words of wisdom, I really do appreciate your reply!@Michael AblanThank you for the response. How can I find someone to walk the property with me? Can it be any local contractor or should I hire someone that advertises this type of thing? My brother has work on building construction for several years and know how to fix things, I'm afraid he might miss some things though. I know this is the most crucial step so I don't want to leave room for error, especially for my first purchase.@Jassem A. Thanks for the replies! How can I find contractors for my area?

Jassem A. · Answer

If you are or have a reasonably priced person to help with repairs then it shouldn't set you back too much. You are going to want to verify income and rental history at minimum and learn how to evict non-paying tenants if you intend to manage yourself.

Jassem A. · Answer

@Dakoda SpencerIn that case I would probably see if the seller can pay your closing costs so that you come out of pocket less at closing. If you do a commercial mortgage then closing costs will usually be a little more expensive than conventional. You may have difficulty finding a bank to finance such a small amount. You may need to buy 2-3 homes commercially to meet their minimum loan size criteria depending on the bank. Local community banks and credit unions are probably your best bet.

Michael Ablan · Answer

I buy similar properties (3 bed, instead of 2 bed though) for around the same price. Ive done well so far. Just make sure you pick a house that isnt going to need a new roof, updated eletrical, plumbing, ect. Having to fork out the money for one of those early on can really set you back. Also, make sure to fork out the money and spend the time to properly screen your tenants. It can be annoying, but it can save you from getting a nightmare in your house. Good luck

Sara Abernethy · Answer

Looks awesome! My caution here would be to make sure you have a thorough professional inspection. Given the last time it was purchased was 1984, there could be some major repairs needed in the not so distant future such as roof, heater, electric, plumbing. I'm concerned when you say you only have enough for down payment - you may have but haven't mentioned....you have to have enough for closing costs and major repair issues too. I think more important than paying cash is keeping a healthy reserve for older properties like this. Keep the down payment low and hold a healthy reserve. You'll cash flow as long as you have a tenant in there, but the extra $100-200/month won't help if you have to replace a roof in the first year. A good inspector will help you plan for this. Walk the house with the inspector - you will learn a ton about houses that way. As far as renting to college students, you can make them sign a one year lease. No reason to only rent to them when it's convenient for them - rent on your terms. If you need to rent on a shorter term, up the rent accordingly. Also, if they are in college I highly recommend co-signers.