It’s not uncommon for new real estate investors to look at low prices in a rural area and see nothing but opportunities. Basically, they think these markets represent the ultimate “buy-low, sell-high” potential. As a result, these people have asked me plenty of times, how can I invest in rural areas?
While you can invest in rural areas, it’s very difficult. Small populations mean small pools of buyers, and homes tend to sit on the market for long periods. It’s also challenging to get contractors to these areas. If you live in a rural area, I recommend instead investing in more developed markets.
In this article, I’ll cover more details of the challenges with real estate investing in rural areas. Specifically, I’ll dive into the following topics:
- Challenges with Investing in Rural Areas
- Alternatives to Investing in Rural Areas
- Best Strategy for Rural Investing
- Final Thoughts on Investing in Rural Areas
Challenges with Investing in Rural Areas
First of all, what actually qualifies as a rural area? While some of this comes down to perspective, here’s a pretty reliable rule of thumb: if a home has a septic system and/or propane tank, it’s likely in a rural area. These systems support homes in areas where utility connections don’t exist, areas typically qualifying as rural.
With that said, yes, you can invest in rural areas, but you likely won’t be very successful with traditional fix & flip homes and rental properties. Both of these real estate investing strategies depend on people—either home buyers or tenants. Unfortunately, most rural areas simply don’t have large enough populations to provide enough potential buyers or tenants.
This limited population density causes three immediate problems. First, with so few people, both rental properties and for-sale flips will likely spend a significant amount of time on the market. During this time on market, investors still need to pay all the holding costs associated with these properties (e.g. taxes, insurance, utilities, loan interest, etc.), despite not receiving any income – either through rents or the actual sale.
Second, finding lenders in rural areas poses a potential obstacle. For fix & flip investors, this means that even if you do find a buyer, he or she may struggle to qualify for a loan to close on the sale.
Lastly, investors in rural areas often struggle to find reliable contractors. I’ve seen new investors make this mistake on more than a few occasions. They assume that a contractor will have no problems making a long, daily drive out to a job site. In reality, most contractors don’t want to deal with this sort of commute. Consequently, even if contractors do agree to the work, a large likelihood exists that they’ll quit after a few days on the job, or take much too long to finish it.
Alternatives to Investing in Rural Areas
Considering the above challenges to investing in rural areas, what alternatives exist?
Broadly speaking, if you live in a rural area, the best strategies involve investing outside of that rural area. I recommend the following three options:
Option 1: Make the drive yourself
Simply put, instead of asking buyers and contractors to come to you, you go to them. In other words, if you live in a rural area, you have a higher likelihood of successfully investing by driving to the nearest, more-developed areas. It’s far easier to hop in your car and drive a couple of hours to another market once a week or so than trying to convince contractors or buyers to do the same.
This may not seem like an ideal solution, but it provides you the opportunity to A) research new markets, and B) choose to invest in the best one (recognizing that you may need to log some miles getting to-and-from properties).
Option 2: Invest out-of-state remotely
New real estate investors typically want to actually see and walk their investment properties, a reality that limits your geographic opportunities. For peace of mind, these investors want to make sure that if they’re pouring thousands of dollars into a deal, they get a chance to review the property in person.
But, you don’t need to see your properties. Some of the most successful investors I know have made tons of money investing in out-of-state markets. With the wealth of property data available online, you can conduct your initial research from the comfort of your own home. However, when you’re ready to pull the trigger on a deal, you’ll need to have a trusted real estate agent on site. This individual serves as your point on closing-related procedures, and he or she can connect you with reliable contractors and property managers in the area.
Option 3: Wholesale out-of-state remotely
Conceptually, this option follows the same logic as investing out of state. However, it saves you from the hassle of needing to remotely oversee a rehab process. In a nutshell, wholesaling entails finding a distressed property, putting it under contract, and assigning that contract to a third-party for a fee (typically a house flipper).
With this strategy, you still need a reliable real estate agent to help you find deals, but you won’t need to worry about contractors and property managers. Instead, from the comfort of your own home, you implement a wholesaling marketing strategy. This consists of building lists of motivated sellers with equity in their homes who have yet to actually list their homes for sale.
Once you have these lists built, you contact the owners with offers to purchase their homes. Many will ignore your offers, but some will contact you for an appointment. From those appointments, some will eventually decide to sell their homes. In this fashion, finding deals just becomes a numbers game. And once under contract, your on-site agent can connect you with local area investors willing to purchase the contracts—and pay you a fee in the process. The dream: you make money wholesaling without leaving your rural enclave.
Best Strategy for Rural Investing
Despite outlining the above alternatives, some people just want to invest in their rural areas. If you want to pursue this path, I recommend doing it incrementally. Rather than diving headfirst into a rural fix & flip deal, begin with a wholesaling strategy. Wholesaling entails far less risk, and it still provides investors an opportunity to test a market.
To begin, build a cash buyers list. This list compiles all the potential cash buyers in your market, and you can use tools like our Investor’s Edge software to do the research. Many established fix & flip buyers purchase their investment properties with cash, which means this list will provide you solid insight into the potential market for assigning contracts with a wholesaling strategy.
If after compiling this list, you can’t identify many cash buyers in your area, you should really think about investing in another area.
Final Thoughts on Investing in Rural Areas
At the end of the day, the challenges to investing in rural areas largely outweigh any potential benefits. To successfully invest in a given area, the market needs to have large enough pools of:
- Buyers to purchase a property in a timely manner.
- Contractors to work on a property.
- Lenders willing to provide financing for a property.
Realistically, most rural areas simply don’t meet these criteria to support successful real estate investing.