What to Consider When Investing in Rural Rental Properties

When most people consider investing in rental properties, apartments in a city or single-family homes in the suburbs come to mind. But you shouldn’t limit yourself to these categories. There are plenty of other opportunities for real estate investing – including rural properties.

What is Rural Real Estate?

When someone uses the term “rural property,” an image probably pops into your mind. But actually coming up with a formal, legal definition of rural is much harder. Multiple state and federal agencies have their own interpretations – as do individual investors.

“Rural property is land in which there is open country and with less than 2,500 people in the area, according to the United States Census Bureau. This would equate to less than 1,000 people per square mile of land,” Kristie Lorette writes for Legal Beagle. “The United States Department of Agriculture defines rural property as a city or town that has a population of less than 50,000 people. The Office of Management and Budget defines rural areas as those that fall outside of metropolitan areas. They are broken down further into areas that have populations that range from 10,000 to 50,000 residents.”

Others claim that a property can be constituted as rural if it’s on a parcel of at least one acre with more than 50 percent of the land vacant. Or if a home is in a neighborhood that is less than 25 percent built, it could sensibly apply this tag.

When it comes to rural real estate, there’s plenty of room for interpretation. But for this discussion, we’re going to use the term to refer to real estate that’s at least a few miles from a small town, has relatively few neighbors nearby, and has a fairly large parcel (often an acre or more in size).

 The Benefits of Investing in Rural Real Estate

It doesn’t get much attention or focus from so-called investing gurus, but rural real estate actually offers several distinct advantages and opportunities for those who know how to find quality properties. These benefits may include:

• Less competition. In a hot housing market – such as the one we’re experiencing right now – competition for investment properties is steep. A house can go on the market in the morning and be under contract by that afternoon. With rural real estate, this same demand doesn’t always exist. This provides more space for researching a deal and making smart decisions.

• Lower investment. Real estate value is largely driven by location. Considering that rural property is, by definition, outside of high-demand areas, you tend to be able to get much more for your money. This gives you a chance to invest in real estate with much less skin in the game. So instead of only owning one property in the city, you can own two or three in the countryside. 

• Fewer rules and stipulations. Because most rural property is outside of city jurisdiction, there are fewer regulations and laws regarding zoning, architectural standards, and rental rules. This gives you the freedom to do as you please. It also creates less friction when it comes to performing renovations and property additions.

• Long-term opportunity. As the population grows, land continues to be developed. While there’s no guarantee, any rural property you invest in could potentially increase in value as developers buy up land in the future. This gives you the opportunity to own a cash-flowing investment property in the short-term, while having the chance to sell for big gains in the future.

 By no means is rural real estate a perfect solution, but it sure does yield a number of opportunities. Just make sure you do your due diligence!

The Challenges of Investing in Rural Real Estate

While rural real estate certainly affords investors some unique opportunities, it’s not a perfect option by any means. If you choose to go down this path, you’re likely to face some of the following challenges.

• Less demand. While less competition is a good thing when you’re buying a piece of property, it becomes a challenge when it comes time to rent out your property. There’s much less demand for housing in rural areas, which means it can be harder to find a tenant. And the longer your property sits vacant, the lower your profit margins. (You’ll also find that you have to charge much less for your rental, even if rates are significantly more in a neighboring town.)

• Fewer public resources. The lack of regulation and zoning requirements is a good thing when it comes to managing your property, but it also comes with a few strings attached. For example, the lack of zoning requirements means someone can come in and put a trailer park right next to your rental property, and there’s nothing you can do about it. You’ll also have fewer public services available to you, which could directly increase your costs.

• Highly dependent. When you invest in a rental property in a city or suburb, you never have to worry about having a market of renters. But when you’re in a rural area, you’re highly dependent on the industries that serve the area – and there are often only one or two. Should one of these industries go bust, your housing market will disappear with it.

It’s easy to let these challenges dissuade you, but you have to view them in light of the benefits. In some situations the risks outweigh the rewards. With other properties, the risks are simply too much to overcome. Ultimately, it’s your decision to make.

Green Residential: Houston’s Leading Property Management Company

Whether it’s in the city or out in the countryside, managing a rental property can be a time-consuming challenge. At Green Residential, it’s our goal to streamline this process for Houston-area landlords who want to invest in real estate without fighting lots of small fires.

In addition to servicing Houston, we also work with clients in a variety of other areas – including The Woodlands, Katy, Pearland, Kingwood, League City, Sugar Land, Clear Lake, Cypress, Cy-Fair, and more. For additional information, please contact us today!