As many real estate investing experts would agree, location is the single most important factor in your investment decision because it will largely determine the profitability of your income property. Then comes a very important question: What are the best places for investment properties? Well, a place – or a location – has various dimensions in real estate investing including urban vs. rural, which city/town/village, which neighborhood, which street, which side of the street, etc. Different locations offer very different opportunities and have very different requirements. In an effort to help you in your choice of a rental property, let’s look at whether cities or small towns/the countryside make for the best places for investment properties.
Investing in Real Estate in the City
When it comes to whether large cities are the best places for investment properties, there is no general consensus among real estate investors. However, most of them agree on the main advantages and disadvantages of buying and renting out in the city. Let’s take a look at them:
- Stronger economy/more jobs
Overall economic activities are focused in the big cities, not in the small towns. As it’s been said many times, the state of the economy is a major driver of the real estate market. A strong economy automatically translates into many newly created jobs, which in turn means that people will be moving into the city, and many of them will be looking to rent a rental property.
- More demand for rental properties
The point above simply means that cities offer high demand for traditional investment properties as there are many full-time tenants. At the same time, cities also enjoy high demand for Airbnb since they usually have numerous business and tourist opportunities to offer. Having a large pool of tenants – for both traditional and Airbnb renting – is a strong reason to consider cities as the best places for investment properties.
- Higher rental income
Because of the vibrant economy and labor market as well as due to the kind of income properties, you as a landlord can charge much higher rent and thus make much higher rental income in the city than in the countryside. This means that cities could provide more cash flow and more return on investment – in terms of both cap rate and CoC return. However, one has to be careful and perform diligent real estate market analysis before making such a claim as it should be taken into consideration that real estate prices are also higher in the city.
- More real estate buyers
While you don’t want too much competition in the face of other buyers when buying your income property, you definitely want a lot of them when you decide to sell your rental property – to replace it with a bigger one or with two new ones. When you buy your home, you don’t go with the idea of selling it, but real estate investing is different from buying a home. As a real estate investor, you should always think about when and how you will be able to sell your asset and buy a new one as a strategy to grow.
- More appreciation
Directly related to the reason above why cities might be the best places for investment properties, urban setting and especially busy metropolises tend to experience much higher real estate appreciation than smaller towns. Even though instant positive cash flow should be your main driver as a real estate investor, you should also think about the long term and look for investments which will bring you significant appreciation in the future. That’s one of the ways in which real estate investors make money.
- More property managers and handymen
But before you decide to sell your income property, you need to manage it and maintain it. Being a landlord is a lot of hard work, and you might end up needing a professional property manager and a variety of handymen to help you in the process. Keep in mind that they are much more available in the city than in the countryside.
Of course, investing in real estate in large cities is not problem-free, so let’s look at the major challenges:
- Higher property prices
Especially for first-time real estate investors, the price of a property is key (though you can find many ways to buy a property with virtually no money). The truth is urban properties tend to cost significantly more.
- More competition
- More legislation
Cities generally have more legislation by which real estate investors have to abide, even when compared to small towns in the same state. This is something every real estate investor should keep in mind, particularly when it comes to Airbnb legal issues.
Investing in Real Estate in the Countryside
When you choose the best places for investment properties, you should keep in mind that big cities and small towns/countryside actually offer very different experiences. The advantages of investing in the countryside are essentially the disadvantages of investing in the city and vice versa, but let’s take a look at the most features in real estate investing in small towns:
- Low property prices
Arguably the major factor which could make small towns and rural locations the best places for investment properties is the low average price of real estate properties. You can buy a huge single-family home with lots and lots of land around it in the countryside for the same amount of money as a small apartment in the city. This means your profitability could be much higher – as cap rate and CoC return.
- Less competition
- Lower taxes
Property taxes are generally much lower in the countryside than in the cities, even if the distance is just a hundred miles. That means your costs will be lower and your return on investment – higher.
- Rental strategy
- Easy, cheap advertising
How you advertise and market your property is of crucial importance in real estate investing, and there is no better ad than word of mouth. If you make a good impression in your small-town location, people will just keep talking about you and recommending you. That’s how small places work.
- Few economic opportunities
Few rural locations offer blooming economies, which means that not many people look to move there and live in a rental property. Moreover, rental incomes will be lower because of the less promising average income levels.
- Less help
If you live in the city and decide to go for an investment property in the countryside, especially if it is out-of-state real estate investing, you will need professional support including potentially a professional property manager and definitely some handymen. Well, such professionals are fewer in smaller towns than in large cities, which might make them not the best places for investment properties.
- Hard to sell
When you decide it’s time to part with your income property, you might face serious difficulties in selling it to someone else in the countryside. There simply isn’t much trade in real estate there.
Last but not least, a con of investing in the countryside which has nothing to do with the nature of the real estate business is the rumors in any small place. If you mess up anything – no matter how tiny – as a real estate investor in the countryside, you are pretty much doomed. People will just continue to talk about it forever. They might even come up with false rumors, so beware.
Unfortunately it’s impossible to conclude decisively whether big cities or the countryside are the best places for investment properties. It depends on what you are looking for and on what you expect as a real estate investor. Also, it depends on the particular city or small town. The best option is to look through various locations across the US on Mashvisor and skip the investment property analysis by using the available rental property calculator.