# Ontario small town real estate



## smalltowninvestor (Feb 18, 2016)

I'm looking to purchase an investment, most likely a multi-family home or a small apartment building. After many hours browsing MLS, the best deals are in small towns with populations <20,000. Does anyone have experience buying real estate in these markets and can speak about their experience? What kind of cap rate should I be looking for? 

I understand capital appreciation will be minimal but on a cash flow basis some of these properties looks too good to be true (especially when compared to Toronto). 

Thanks!


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## Just a Guy (Mar 27, 2012)

Small towns can be a boon, or a disaster. A lot of farmers like to retire to town and rent...but farming is a dying business. Kids can't wait to get away from small towns. Tenant market is slow, and decreasing. So, for me at least, you want to make enough money so that you can walk away from the building if the town dies off. 

Also, small towns often have political issues. The town hall could impose a lot of rules to follow, which you may not be able to comply with. For example, there was one town who insisted on having improvements mad to the building, but wouldn't issue permits because they didn't have a building inspector...a position they'd been trying to fill for two years. Typical government double talk.


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## smalltowninvestor (Feb 18, 2016)

Just a Guy said:


> Small towns can be a boon, or a disaster. A lot of farmers like to retire to town and rent...but farming is a dying business. Kids can't wait to get away from small towns. Tenant market is slow, and decreasing. So, for me at least, you want to make enough money so that you can walk away from the building if the town dies off.
> 
> Also, small towns often have political issues. The town hall could impose a lot of rules to follow, which you may not be able to comply with. For example, there was one town who insisted on having improvements mad to the building, but wouldn't issue permits because they didn't have a building inspector...a position they'd been trying to fill for two years. Typical government double talk.


Thanks for the insight. That was one of my worries. I understand those risks are high in small farming towns (i.e. 1,000 to 5,000 people) but is that still a risk in a town of 10,000 to 40,000 people? There are many smaller towns within 1 to 2 hours of Toronto that are not exactly farming towns.


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## Just a Guy (Mar 27, 2012)

Each town is, as you say, different. That's why you have to do due dilligence. It's part of the business. When I am interested in new places, I find out about that place, get to know the population, what ecconomic drivers it has, the demographics, the politics, then I find out about the area in the town, the history of the building, health reports, crime reports, average income, average rents, etc.

You need to know what you are getting into, and you can't assume you know everything just because you know a different place. Real estate is local. Take some time, there's usually less competition for smaller towns as they are higher risk...but that generally means lower prices and higher profit potential.


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## Berubeland (Sep 6, 2009)

My advice to investors is to be close to where you invest so if you have problems you can just go there. It's hard to find trades & other competent professionals in small towns.


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## Rusty O'Toole (Feb 1, 2012)

I have owned small town rentals for 40 years and made a lot of money. My happy hunting ground was 5 - 10 units. Up to 4 units can be mortgaged as a house and they attract buyers who don't care about cap rates, they just want some help with the mortgage. So they tend to get bid up too high. 20 units plus attract the big operators with deep pockets. The ones in between often take a long time to sell and can have motivated sellers.

Cap rates don't mean as much as they used to. In this day of low interest rates properties get bid up and cap rates are on the high side, yet this does not mean too much if your interest rate is low and your mortgage payment is low, or your alternative is to put it in a GIC at 2%.

My rule has always been I want a positive cash flow after all expenses and mortgage payments including interest on my down payment. The best deal I ever got was on a run down 6 plex under power of sale for $137,000. It had a rental income of $3600 a month. It took about 6 months to put it in good condition and get it rented out but I made some good income there. This was back in 1990 when real estate was stinko and rental real estate was double stinko.

You have to relate the property value to the rent and expenses. Rent will be lower but expenses more or less the same as a bigger town. This affects the value of the property as an investment.
Capital appreciation may not be as fast as in the city, still and all, the value of your property can double in 10 - 15 years.

I should add I have never had any luck hiring property managers even so called professionals. Unless you know someone, better plan on managing it yourself.


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