Big city versus Small Town multifamily?

[Darwin Crawford]

Hey there BP,

So I'm looking around at expanding my portfolio into some out of state rentals, mostly because my home market is really hot right now and pricing is through the roof, depressing cap rates to unacceptable levels for me.  

So - I've found some deals through work, and one in particular is really catching my eye.  Its a 6-unit building, 100% occupied, with 26% cap rate and deferred maintenance.  Construction doesn't bother me a bit, and I'm working on getting over my fear of remote-landlording, but I do have some questions for the world about the success of small-town stuff.  

This place is located in a small agricultural town in Texas, with good local economy, and is occupied by what appears to be immigrant farm workers and their families.  When i say small, I mean 3500 people.  I'm no stranger to small-town life, and it seems that turnover here is really, really low, which I like.  Things are cheaper in small towns, and the local economy is stable, if slightly monotone.

What have people's experiences been like in small towns?  The cap rates I see are unbelievable, but I can't imagine there is much appreciation at all.  

Positive/negative stories all welcome, or well-informed criticism.  Trust me I can take it.  

[LuAnn Vigen]

Just my two cents worth. I have rentals in small towns the largest town has 13000 residents. The smallest town has under 2000. Surprisingly, I get better cash for from the smallest towns. The towns are all about an hours drive from a large city of 115000 people.

I have thought about rentals in the bigger cities, but all I see is bigger problems. There are over 100 units available on craigslist at any given time. In the small towns, you have no competition. The turn over is small towns seems to be less, because there is no were to move to unless my tenants purchase a home. The trouble usually stays in the larger cities so that is also a plus.

If your looking for properties management, you might have problems finding them in small towns. I have to do my own management. If you don't have local plumbers,electricians or other service people, it might cost more for those services if they have to come from the larger areas.