Any thoughts about buying commercial residential in ultra small towns

REIGirl

Inspired Forum Member
Registered
Greetings!

I am wondering if anyone here has any experience they would like to share or thoughts about purchasing commercial residential properties in ultra small town communities, say for example, with a population under 2000? The places I am thinking have prices far more affordable than major cities and there is positive cashflow.

Some of my concerns are:
-vacancies may be more difficult to fill due to small population
-cost of labour/repairs may be significantly higher since may need to outsource workers from out of town
-distance from my own personal residence (couple hours or so)
-minimal amount of industries and economic diversification
-negative net population growth

On the flip side, some pros I see:
-affordability
-positive cashflow
 

Michel Lafleur

Frequent Forum Member
REIN Member
If you're going into a small town, I'd stick to a single family residential property or acreage. If less than 2000 population, thats not enough to keep a multi-suite apartment full, especially if it has negative net population growth.
Who are the main employers there? Who would your tenants be? Im guessing under 2000 population may not even have schools, are there many kids? A bunch of bachelors? Low income/AISH clients? Seniors? How far is this town from the nearest major centre for food & amenities, employment, education, medical care, etc ? Even though affordable, this would likely only cashflow with low vacancy.
I have seen challenges getting financing on multifamily in these tertiary markets - you might need to use private money or a local credit union with something like 65% LTV and proof of a substantial reserve fund.
 

REIGirl

Inspired Forum Member
Registered
Hi Michel,

Thanks for your reply!

Lots of good questions and points to definitely consider! I'm starting to see more red lights in this particular situation than green lights. (But I have to admit, the price is definitely tempting :/ )

You mentioned financing, from what you know, is it typically harder to find financing for the smaller communities in general, or does it depend more on the particular town and the type of fundamentals at play in that community such as industry, population growth, distance to major centre, etc.?
 

Michel Lafleur

Frequent Forum Member
REIN Member
Hi Michel,

Thanks for your reply!

Lots of good questions and points to definitely consider! I'm starting to see more red lights in this particular situation than green lights. (But I have to admit, the price is definitely tempting :/ )

You mentioned financing, from what you know, is it typically harder to find financing for the smaller communities in general, or does it depend more on the particular town and the type of fundamentals at play in that community such as industry, population growth, distance to major centre, etc.?
Financing will depend alot on the economic fundamentals of the town and the lender's perception of risk there.

Many of the larger lenders don't fund commercial deals under $1M - have seen many challenges with smaller buildings like 6-10 units.

I've also seen many lenders who aren't comfortable in the smaller centres and will only invest in the cities (generally meaning population >25,000) that have some sort of local economy/amenities. If its a tiny town with say a general store, gas station and post office, most lenders won't go there.
If thats your case, I'd suggest trying a mortgage application with the local credit union for that small town our county.

In smaller centres the risk is vacancy (if town is shrinking, you'll have a diminishing pool of potential tenants), and you will be land-locked in terms of rent rates. If you aim to increase rents, are there enough tenants to support that? can hose tenants afford the extra $50-$100/month ? Or would they try to save that $, even if it means moving into another building?
 

REIGirl

Inspired Forum Member
Registered
Financing will depend alot on the economic fundamentals of the town and the lender's perception of risk there.

Many of the larger lenders don't fund commercial deals under $1M - have seen many challenges with smaller buildings like 6-10 units.

I've also seen many lenders who aren't comfortable in the smaller centres and will only invest in the cities (generally meaning population >25,000) that have some sort of local economy/amenities. If its a tiny town with say a general store, gas station and post office, most lenders won't go there.
If thats your case, I'd suggest trying a mortgage application with the local credit union for that small town our county.

In smaller centres the risk is vacancy (if town is shrinking, you'll have a diminishing pool of potential tenants), and you will be land-locked in terms of rent rates. If you aim to increase rents, are there enough tenants to support that? can hose tenants afford the extra $50-$100/month ? Or would they try to save that $, even if it means moving into another building?
Thank you for your insightful feedback! This is very helpful information :)
 

Thomas Beyer

Senior Forum Member
REIN Member
Greetings!

I am wondering if anyone here has any experience they would like to share or thoughts about purchasing commercial residential properties in ultra small town communities, say for example, with a population under 2000? The places I am thinking have prices far more affordable than major cities and there is positive cashflow.

Some of my concerns are:
-vacancies may be more difficult to fill due to small population
-cost of labour/repairs may be significantly higher since may need to outsource workers from out of town
-distance from my own personal residence (couple hours or so)
-minimal amount of industries and economic diversification
-negative net population growth

On the flip side, some pros I see:
-affordability
-positive cashflow

These are ALL very valid concerns.

Unclear what you mean by “commercial residential” properties? Rental properties?

Best are houses (the more land the better) that you can rent with cash-flow but eventually sell to an owner if you want. Don’t ever buy a condo or vacation rental as an investment - except for personal use.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 

REIGirl

Inspired Forum Member
Registered
Thank you for your reply and advice!

Yes, I was referring to residential rentals, specifically I was considering either a townhouse complex where we would own all the units, with the exception of one. The townhouses are registered as condos, but they are being sold as a whole. We may also consider apartment buildings in smaller communities as well.

We are not sure if we should focus on smaller towns that are more affordable, but still cash flow or just focus on larger cities like Edmonton, where we live. We are looking to invest in multifamily.

Just to clarify, are you suggesting purchasing a house on an acreage as a good strategy for small town RE investing?
 

Thomas Beyer

Senior Forum Member
REIN Member
Thank you for your reply and advice!

Yes, I was referring to residential rentals, specifically I was considering either a townhouse complex where we would own all the units, with the exception of one. The townhouses are registered as condos, but they are being sold as a whole. We may also consider apartment buildings in smaller communities as well.

We are not sure if we should focus on smaller towns that are more affordable, but still cash flow or just focus on larger cities like Edmonton, where we live. We are looking to invest in multifamily.

Just to clarify, are you suggesting purchasing a house on an acreage as a good strategy for small town RE investing?

Any RE is a good idea in principal, depending on price, quality and location. SF, THs, MF, industrial warehouses, hotels, retail, mobile home parks etc

A little broad a question for a forum. You can make a killing in either form or location or lose your shirt. Details matter. Thoughts on how to get started here https://myreinspace.com/threads/how-to-get-started.4363/


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 
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REIGirl

Inspired Forum Member
Registered
Indeed, there are many variables to consider. Thank you for the link to the excellent post!
 

Martin1968

Frequent Forum Member
Registered
Financing will depend alot on the economic fundamentals of the town and the lender's perception of risk there.

Many of the larger lenders don't fund commercial deals under $1M - have seen many challenges with smaller buildings like 6-10 units.

I've also seen many lenders who aren't comfortable in the smaller centres and will only invest in the cities (generally meaning population >25,000) that have some sort of local economy/amenities. If its a tiny town with say a general store, gas station and post office, most lenders won't go there.
If thats your case, I'd suggest trying a mortgage application with the local credit union for that small town our county.

In smaller centres the risk is vacancy (if town is shrinking, you'll have a diminishing pool of potential tenants), and you will be land-locked in terms of rent rates. If you aim to increase rents, are there enough tenants to support that? can hose tenants afford the extra $50-$100/month ? Or would they try to save that $, even if it means moving into another building?
Wel written.
I’m one of those investors That doesn’t shy away from small centres, it’s been a successful strategy.
Only remark I would want to make, is to make a distinction between smaller centres and small town.
Small centres, often county seats with a wide array of services, somewhat of a critical mass of minimal 5000/6000 people living there and thus very livable for a wide variety of people, can be an excellent investment.
Small town under 2000 people, removed from larger centres, no active economie, no rentalpool other then some locals, you will regret putting your money into it the day you take possession.
 

Thomas Beyer

Senior Forum Member
REIN Member
I have done very well in many small centres such as Wetaskiwin, Camrose, Powell River, Fox Creek, Rocky Mountain House, Campbell River, Blackfalds, StonyPlain etc but liquidity is an issue as many potential buyers don’t go there, and more volatile. As stated too small a twin esp isolated very high risk as often tough to manage and few trades to chose from for repairs.

Bigger cities more expensive but possibly more upside and far more liquid.

No right or wrong answer here.


Sent from my iPhone using myREINspace
 
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