Should I buy small multifamily in rural development area??

Question

Hi everyone! I am currently under contract for a duplex in a rural area marked for development.

There are 2-3 huge commercial real estate properties being built within the next couple of years (currently under construction). This property is 5 minutes away from a major university. I am very new to REI and would like to know if this is a great opportunity to buy in an up and coming area or if the residential properties will negatively impact my ability to rent out my other unit. Open to all advice, thanks so much!

Josh Silvester · Answer

Thanks so much for the advice Greg! I know you and Jonathan said there wasn’t enough info in the post to get an accurate analysis. What could I add to paint a better picture here? Still learning what questions to ask and info to seek out so thank you again!

Adam Bartomeo · Answer

The numbers will have to tell you if it is a good deal or not. What's going on in the community would be the icing on the cake.

Jonathan Greene · Answer

There isn't enough information in there to give you good advice one way or another. But from what you posted, being in the path of development, near a major U is a good thing. However, rural areas tend to have less multifamily properties (depending how rural) so that can give you an issue with finding comps for your purchase. I still like multifamily near apartments because they are generally different tenants. Multis feel more like a house and you have one person living with you (or 2 or 3 depending on duplex, trip, or quad), whereas an apartment complex has more amenities, but people sharing walls everywhere.

Greg Kasmer · Answer

Josh - I think the exercise that would be good to go through is to develop a pro forma showing your current revenue/expenses/income as well as a projection for future years. Sounds like there might be some "upside" as future development takes place with increased demand, but it's important to know the financial situation up until that time period. Will you be cash flowing in the meantime? Happy to talk through it with you as well. Good Luck!

Andrew Syrios · Answer

Are these commercial properties like offices/retail or apartment buildings? Generally, a lot of development is a good thing but if it's just more apartment units, it could get over built. I would look into that and try to get a gauge for the occupancy of the area and whether new jobs are coming in (check the local business press). If there's good job growth and low vacancy, you should (probably) be fine. Just make sure to do your research.

David Wallace · Answer

Some good advice here from other commenters. I'll just add one thing. Make sure the price you pay is based on its current position and not its potential value in the future. Sellers will try to get you to pay for the asset as if the area around it is already developed, allowing them to capture the upside, while you do all the work over the next few years

Alecia Loveless · Answer

@Josh Silvester As far as the rural market goes I’m in a fairly rural area, largest town has 8000 people and several smaller towns with under 3000. I have properties in 5 of these areas and do quite well. I haven’t had any problems getting them rented but my most upscale building took maybe 1 week longer per unit than the others to lease up because it is relatively more expensive than other properties in the same small town. About 2500 people. I think being near a university will just be the icing on the cake for you. As things continue to grow in your market other investors will likely become more interested in buying there making your property a hot commodity. Not sure how close you are in terms of proximity to the university but my Dad bought property near a university for over 30 years and eventually a developer came in and bought everyone out and added luxury student housing and shopping with a huge payday for all the owners who had bought many years before. These things do really happen. If I had an opportunity to buy near a university that was reasonably priced I would buy as much as I could.

Drew Sygit · Answer

It may be a frustrating few years until the area grows around you, but can pay off in the long run.

Greg Kasmer · Answer

Josh - I agree with Jonathan that there is not enough information to give you an exact answer. However, a few things I would suggest to give you a better perspective is: 1) Talk to property management companies in the area to see if they operate in the area and/or have comments on tenants in the area, 2) Speak to a few banks to understand how they would lend on this property, 3) Scan Zillow/craigslist and other listing sites to understand the rental market for listings... I think by going through those steps you'll have a better perspective on the area and the current and future potential. Good Luck!