The first and seemingly logical choice for many buy-and-hold real estate investors is to acquire property in cities, but there are good reasons to consider rental homes in rural areas. Although the majority of the U.S. population lived in a city or incorporated area in 2015, 37 percent of the rest lived outside of those boundaries.
In 2016, the rural population numbered 120,250,000+, which is a large enough base to consider when evaluating the depth of opportunities. Like all investments, legitimate pros and cons exist for both rural and urban rental properties.
So, which is the best investment for you: urban or rural? We’ve outlined a few of the benefits and drawbacks below.
Urban or Rural: Which Makes The Best Rental Property?
The Case for and Against Rural Properties
- Homes cost less. The migration from small towns to big cities continues as children grow up and leave home for higher educations and more career opportunities. When the property passes onto them, the children frequently want to sell it quickly rather than be saddled with it, selling it at or below market.
- Appreciation rates are also slower in rural areas than in cities and their suburbs. Because demand is lower, there’s less upward pressure on prices. The sheer availability of more land for development nearby also keeps a lid on price increases.
- Low vacancy rates. Based on the 2010 Census, there were far fewer vacant homes available for rent in rural areas than nationally. The Census Bureau reported that just 15 percent of the housing stock in rural and small towns was available for rent, as opposed to 27.6 nationally.Nearly half of the vacant homes in small towns and rural areas were held for seasonal use in 2010 compared to just 12.5 percent in urban and 25.9 percent in suburbia. Rural second homes tend to be clustered in scenic destination areas.These homes almost always carry higher price tags and they often command top dollar as short- or long-term rentals. However, they also incur higher expenses in terms of time and money for their owners and management companies.
- You can be a big fish in a small pond. Since most of the homes in rural areas and small towns are owner-occupied, you have an opportunity to carve a niche for yourself as an investor. If you find residential property ownership financially and personally satisfying, it’s easier to develop your brand in a less competitive environment.
The Case for and Against Urban Properties
- Deeper market. Investment opportunities are easier to come by in an urban environment, from the types of rental properties to the size and diversity of the renter pool.
- Less risk. Regardless of the type of property you choose, the odds are in your favor that someone will live want to there. Migration into and out of cities is constant, and in a good economy, inflows outnumber outflows.
- Easy access to services. Your access to professional property managers is much deeper in the city, as are service provider, from skilled trades to garbage pickup and fire services.
- Faster appreciation rates. City homes appreciate faster, especially in landlocked cities. The lack of available land to meet a growing population’s need for housing drives prices up.
- More diverse economy. Although there are exceptions, city economies have a broader base, which provides more cushion for real estate investors during downturns.
Requirements for Either Rural or Urban
Know the market well. Before making any decisions to invest, learn what drives the local economy and how it’s performed over the last few business cycles. The research you do will pay off in good decision-making regarding where and what you ultimately choose for investment and wealth building.
Talk to one of our investment specialists to learn how JWB can help you earn passive income through long term real estate investing.