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Pros and Cons of Investing in Small Communities

by John Brydon-Harris on February 28th, 2018

Small Town LivingMost high-profile commercial real estate investments tend to happen in larger urban centres. They’re the ones we hear about and perhaps aspire to invest in. However, there are lots of opportunities for real estate investors in smaller communities; small town properties can still offer positive cash flow and the advantages of lower prices and limited competition.

Here are some knowledge points you may want to factor in when considering whether to invest in a smaller community:

Limited competition. Smaller urban centres don’t necessarily attract the same number of investors as larger metropolitan areas. As a result of reduced competition, newer investors have the time to carefully inspect the financials and be more thorough in the due diligence phase of property selection. Savvy and patient investors may find solid bargains that would not otherwise be available in larger real estate markets.

Property values tend to be lower. Small towns tend to have lower price points compared to bigger centres. This is predominately a result of supply and demand. Commercial property investors in smaller communities may feel they are getting bargains on properties; however, monetizing those properties can be problematic if investors don’t take the time to familiarize themselves with the communities they are considering investing in. It’s very important to know the community and be aware of the impact that market forces in the area may have on your investment.

Lower overhead costs. Major urban centres tend to have higher infrastructure and maintenance costs, which often translate to higher levels of taxation for investors. Also, because there are larger populations in big cities, crime levels in certain areas can be higher than in smaller centres; this impacts tenant bases, taxes, and security costs. Big cities also lean toward placing greater levels of regulation to control the balance between commercial, industrial, and residential spaces. So smaller centres may be less costly for both developers and landlords.

Brand growth and community impact is greater. The limited competition in rural towns will provide a unique opportunity for brand growth and recognition in the early phases of your business venture. Word of mouth has a greater impact in small towns; both positive and negative messages spread quickly in close-knit communities.

Small town issues. The impact of your business can be greater in a smaller community. This can go both ways: As a new employer, people may speak positively about your project, but poor customer experiences also have legs (and not in a good way). Careful messaging may be required to attract and retain customers.

Resources: Some resources that are easily available in a larger centre may not be as readily accessible, and professionals such as property managers, lawyers, maintenance professionals, and building inspectors may be more difficult to access.

Appreciation: Commercial investors also need to be aware that properties may appreciate more slowly in small communities. Also, if you’re considering a development project in a smaller community that boasts a current employment boom, ensure your investment will still be sustainable if the boom slows or ends.

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