Why I stay away from small town real estate investing

There are a number of reasons that I prefer to stick with major urban centers when real estate investing as opposed to small towns. Overall, it’s just a safer bet, but let me explain the reasons why;

Economic diversification

Larger urban centers have a much more diversified economy. When one particular industry hits the skids, there are many other industries that can replace it. Being stuck in a one-horse town when that one horse leaves is not good! For example, if you have a rental property in a town that produces lumber, and 80% of that town works at the pulp mill, all is good if lumber prices are high and business is good. But what happens when all of a sudden everyone stops buying lumber? Your workforce gets laid off, people leave town, vacancies rise, and housing prices drop! There are many examples of these towns throughout interior BC. The same could be said for small towns in Alberta that rely on the energy sector. When times are good, vacancies are 1-2%. When times are bad, these vacancy rates can skyrocket to 25%-30% which believe me can be very scary and stressful.

Mortgage financing

We all know that financing is one of the keys to real estate investing, right? Lenders are much more hesitant to lend on properties in small towns as opposed to big urban centers. And CMHC won’t even touch certain towns when it comes to mortgage insurance. If you are requiring a mortgage to buy your rental property, be sure to do your homework first!

Property Management

Who is going to manage your rental property? In major markets like Vancouver, Calgary, or Edmonton, you have many, many property management companies competing with each other that you can choose from. In a smaller center, you might have one or two, so your options are far more limited. If you don’t like how they operate, too bad, as you’re likely stuck with one of them!

If you’re looking for advice on property management or where to place your investment dollars, please get in touch with us first here.

Chris Stepchuk March 26, 2017

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