Multifamily in a small town...How small is too small?

[Vince Gethings]

Hi BP, 

I am looking for advice on buying and operating apartments (15-25 units) in small towns. 

Background:

A couple properties came on market in a town about 20-30 minutes outside my normal market. The properties themselves look like solid C+ properties and the financials provided look typical of a mom/pop operation, with some decent upside potential...selling at an 8 cap on actuals.

Now, the biggest concerns I have is that these town are small, 1,700-2,500 population. I'm not familiar with them at all, so I called a couple agents in the area. They confirmed my thoughts that most of the population commutes to the larger surrounding markets and they is little for economic drivers in this town. The demographics and average incomes look solid to support the rents for these properties. 

Questions:

1. Does the size of this market add considerable risk to investing in apartments here?

2. What concerns or factors should I be considering with small town apartments?

Thanks in advance for any helpful comments!    

[John Barrett]

@Vince Gethings If possible ask for the rent roll for the last three years as this will give you some context for how the property has performed over time. I would also use a site like niche.com to find out specifics on the city itself. In your analysis you can look at the large MSA to get a sense of how the overall economy in the area is performing. At the end of the day it really just comes down to how you feel about the area and how you expect it to perform over time. I would be more conservative on my estimates which it sounds like you are and understand you may need to be flexible on the sale. Best of luck to you.