Looking to buy CRE in small towns in the Midwest and East. Less than 10K population is the target. Any advice will be well receive.
After all the craziness in HCOL/MCOL starting to look into LCOL and its opportunities. Some properties are very good prices and ROR. If anyone is doing it now or as regular business any guidance to us will be appreciated.
[{"id": "h31hs7r", "text": "Think of your exit (liquidity) and who the main employers in town are. Figure out what cash yield you\u2019re comfortable with for that risk. Expect little to no appreciation unless major employer (leading to population growth) comes to town.", "replies": [], "depth": 1}, {"id": "h31lkx7", "text": "I don\u2019t think anybody does it intentionally. They either are committed to the local area or have a business that can use the space. \n\n10k is tiny. LCOL is still like Waco or Corpus Christi", "replies": [], "depth": 1}, {"id": "h31msel", "text": "You will have to use a very local bank or full recourse loans or cash as most lenders don't like to go below 50k population due to demand, employment, etc...I think an exception to this would be beach towns or tourist towns that aren't open year round.", "replies": [], "depth": 1}, {"id": "h31nehv", "text": "Opening a chain of dollar stores?", "replies": [{"id": "h31o36h", "text": "That is one option if potential tenants does not show up. Driving thru a lot of those small towns you can see that there is a need for a supply site that will save them time on driving. The challenge will be the Cashflow that can generate and the appreciate the value of the property for possible selling after good anchor is made.", "replies": [{"id": "h31sasy", "text": "What is your objective?  Cashflow? Appreciation?", "replies": [{"id": "h31sus2", "text": "Both as possible.", "replies": [{"id": "h31tbbu", "text": "If you want both, then you will have to be in the southeast/south.  These small towns eventually get swallowed by growth which is where you appreciation happens. It is not happening all that much in the midwest anymore", "replies": [{"id": "h328dgf", "text": "I just wanted to tack on look at the highways and access.  There is a huge difference in any region between a small town that is on the highways and may grow as msas merge and one that is not close to anything and there is no reason to expect it to change at all", "replies": [], "depth": 6}, {"id": "h4ku1ff", "text": "I live in the southeast (Georgia) and can attest to the growth.  When I hear people talking about investing in CRE in the East, especially at the LCOL level, I always hope they mean mid-Atlantic and definitely the southeast.  Especially in this current environment (with some exceptions obviously).", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h31rv8u", "text": "I would suggest looking in the southeast in small towns on the outskirts of major cities. You have a much better chance of appreciation as well as stabilizing the properties.  Will make your exit a lot easier and more profitable down the road.", "replies": [], "depth": 1}, {"id": "h31xma7", "text": "CAP rates are usually very good, say 9-10% on multi tenant properties.  Downside is little to no rent appreciation.  One market I know well rent is flat 20 years.  \n\nSo you get cash flow but not appreciation.  \n\nVacancies can take a very, very long time to fill.  \n\nI would be happy to answer more pointed questions.  I made a career out of it", "replies": [], "depth": 1}, {"id": "h327w37", "text": "I live in Cincinnati which id consider lcol.  We still have 3 million people in the metro area.  One of my clients purchased a dollar store in a city about 90 minutes out of the city in a small town of I believe 5k or so?\n\nWell tenant didnt renew their lease and I had to sell it or lease it.  All I can say is those caps come with a reason.  If you lose your credit tenant there isnt another one.  Your buyers or tenants are going to be the locals.  Expect people wanting 6 month leases and an absolute nightmare getting anyone out there to bid ti and maint.  \n\nSmall town are dieing.  Educated people are leaving them.  \n\nIf you can navigate all that and do 20 of these you can get a nice return.  You will lose your ass and wind up with some vacant for 5 years and leasing to flee markets too.  \n\nIf you are just chasing yield on one asset and think you discovered an easy cheat code no one else knows about reconsider.\n\nThese are hard and very risky.  They are time consuming and everything you do is expensive and takes longer than dealing with properties in major msas.  \n\nAlso people wont like you.  You will be an outsider.  They will look at you as the big bad rich guy from the big city and not blink at ripping you off.  I cant stress this enough.  The same 3rd generation roofer who will fix a neighbors roof for a pie because they need help is going to tell you a bunch of bullshit and email you an invoice that says \"roof work\" with a number he pulled out of his ass.  If you want a second opinion good luck getting the company 2 hours a way to go out there.\n\nProperty value is much lower too.  While yield seems good you are going to wind up with 500k properties in your portfolio which if you get 10 cap or 8 cap its like who cares?  Your time in these is going to always make you grind and if you are a serious investor you are going to find the soft costs dont justify dealing with them because the actual profits just arent enough.  \n\nJust getting a broker who has ever done a commercial deal to open the door so you dont have to fly out and drive 3 hours for someone who wants to do a 1 year deal is going to be hard.\n\nThese are entirely about the in place tenant and you should expect a large amount of pain if they leave.", "replies": [{"id": "h387l40", "text": "V solid response", "replies": [], "depth": 2}, {"id": "h3d54ui", "text": "This is due to your city being Cini.  Most major cities the smaller towns 40-60 minutes out are being MORE populated.  NYC, DC, Boston, all cities in Texas, CA, etc.", "replies": [{"id": "h3e6lqm", "text": "40 to 60 minutes out is just suburbs here.  I dont think anyone would describe them as small towns or less than 10k population.  That was kinda my point though, buy lcol in a major msa", "replies": [{"id": "h3fr1t3", "text": "If you drive 60-80 miles outside of a city (depending on the city) you typically run into into small towns.  I'm in DC and an hour west/east of DC it's farms, vineyards, etc.  There are small towns between 5k to 10k all over the place.  But, an hour's commute is normal for many residences in the DC area.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h37gpb7", "text": "If you are committed to this model I would suggest you at least target cities that are located within MSA\u2019s of 100k+ population and at least .5% population growth over the last 10 yrs.", "replies": [], "depth": 1}, {"id": "h3d4u91", "text": "I have been acquiring commercial property in smaller towns outside of major metropolitan areas for several years now.  There are several criteria I follow:\n\n1. Location.  The property must be on or one block away from the main corridor.   Being near a major highway is a plus.\n2. Building age.  Most small towns buildings are 100+ years old.  I have one building now that is 120 years old in a town of 5k population.  But, it's located on the busiest block.  The last purchase I made the building was 70 years old.  Confirm the condition of the foundation, structural walls, and roof.\n3. Adjacent businesses.  Small towns have small populations.  Small populations cannot support many businesses.  Normally, in a small town only 2-3 food establishments are successful.  Same for retail, etc.  Beware who the Tenants are and look into how well they are performing versus competition.\n4. Curb cuts.  I prefer to work with credit tenants and lean on acquiring properties that suit their criteria (Dunkin, etc).  Having existing curb cuts is key.\n\nOverall, the pandemic has increased population in small towns.  But, not by much.  Even 200-300 more people isn't enough to change the landscape of small town economics.", "replies": [{"id": "h5p5yd3", "text": "Curb cuts? Like for driveways or sidewalks? I don\u2019t get how this is a real factor, how much could it really cost to cut the curb?", "replies": [], "depth": 2}], "depth": 1}, {"id": "h4crts0", "text": "There's an article about the top 7 cities to watch for CRE investing across the nation [here](https://rhove.com/news/learn/the-top-7-cities-for-investing-in-multifamily-cre). Anywhere that showcases innovation, centrality, walkability, etc would be a good choice IMO. Not sure about the 10k population but wanted to put the article out there as a resource!", "replies": [], "depth": 1}, {"id": "h4jqhxr", "text": "I have done FHA refi multi family loans in very unpopulated areas in Texas before. 35 year fixed, 80% LTV cash out, around 2.9-3.0%, and this is non recourse. No net work or liquidity requirements. Message me if you would be interested.", "replies": [{"id": "h4kvek3", "text": "How many units for the multi?", "replies": [{"id": "h4lnu6c", "text": "Depends on the market but generally speaking the more the better due to amount loaned per unit statutory limits. Do you have a property you are looking at?", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h6b5s5i", "text": "One question to consider is how long you plan to hold. If you can operate with a sort of perpetual capital model, older cities/towns *might* provide decent cash flow in the medium term and excellent (very) long term upside thanks to changing generational preferences and the impact of climate change in the Sun Belt. If you need to exit within a decade, probably best to look in the south and west. \n\nAlso, as another commenter pointed out, unless you\u2019re coming in and acquiring/developing mega-projects, you\u2019ll need to befriend a lot of different local lenders in various markets. Which could end up being a headache\u2026", "replies": [], "depth": 1}]