The last 18 months have forced real estate agents and their clients to deal with unprecedented and difficult challenges. Between the ongoing eviction moratorium inflating the market and a booming interest in small-town real estate, the industry is shifting its mindset for the first time in nearly a century.
Even when it comes to real estate investing in small towns, most investors tend to think about residential real estate instead of commercial real estate investment opportunities.
However, entering a small town’s commercial real estate environment offers you the opportunity to not only reap the rewards of a renewed and booming economy, but also make a difference in a community.
Although any property investment presents a mix of risks, drawbacks and rewards, there are many small towns that offer great real estate investment opportunities far and above what the big city can present.
When examining a small or rural community to determine if your commercial investment would pay off, also consider the local housing market. A recent Harris Poll found that nearly three in 10 people in America say the pandemic motivated them to live in a rural area, and home purchasing trends are beginning to reflect that.
If there’s a sudden boom of homebuying in your target area, chances are equally good local commerce will thrive, and that’s good news for your bottom line.
Small, independent businesses typically go above and beyond to support a small business culture, and many local business owners are more likely to expand their holdings by launching additional small businesses and investing in additional properties — and you can be the one to connect them with those properties.
Before you enter a community, consider the local mindset around small businesses. Has the area invested money in recruiting, retaining and supporting small businesses? Is the local chamber of commerce or town council vocal about its desire for a booming small business culture?
If the answer is “yes,” you’re probably in good shape. After all, your commercial real estate investments will be an integral part in the local economy, and if the community is invested in supporting small businesses, they’ll also be prepared to support you.
Investing in community
Financing commercial real estate means looking at more than the ROI of that investment. Frankly, there are some elements of this kind of investing that simply can’t be measured by numbers and percentages.
“A vital element of small-town real estate investing is community,” David Sandhu, CEO of investment group TiLt Ventures, said. “Small towns are tight-knit and they care deeply about who is putting money in their communities. You have to demonstrate that you feel the same, and in return, you get the good feeling of giving back.”
A large part of that, Sandhu added, is understanding the community’s priorities and how your investments fit the bill. Most small towns want year-round, sustaining residents. They’re looking to attract young professionals and families who will lay down roots and build a future that’s devoted to the community.
And a growing number of millennials and young Gen-Xers want to live and work in the places they used to only view as tranquil places to vacation — typically small towns with thriving commerce and great accessibility.
The community’s chamber of commerce as well as the planning and development board can help you determine what will best be endorsed based on the community’s size and financial profile.
While commercial real estate investing in a big city often feels like a nameless, faceless exercise, most small towns and rural communities will be very interested in who wants to invest in their community – and will be less cooperative if you don’t show the same care.
Risks vs. returns
Of course, there are always risks associated with commercial real estate. When you’re investing in an area with a smaller population, you run an increased risk of a loss of ROI — small businesses are seeing more success now than ever, but there’s never any telling what could happen.
It’s a risk you’ll need to be prepared to assume. And while if you need a property manager, maintenance team or construction company, they’ll be easier to find locally, you may not have access to the diversity of bids and costs that you’re accustomed to in a big city.
“These are legitimate things to consider,” Sandhu said. “But I will say, most small towns have a vested interest in the success of commercial real estate investments. So if you build those relationships early, the community where your investments rest will have your back.”
Investing in commercial real estate outside of the big city also comes with an increased need for an exit plan. Economic changes in a small town can have devastating impacts, and if you’re overinvested in a town that ends up going under, that’s going to be just as tough on you as it would be for the town.
Are any of these factors iron-clad in ensuring the success of attracting investors and new businesses? No, but introducing the right investors to burgeoning small communities and committing to keep funding local can increase the chance of long-term success in revitalizing small communities through local commercial real estate investing.