Property Playbook: Niche Investment Opportunities in Real Estate

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In this edition of Property Playbook, we delve deeper into a few unique asset classes that the real estate world offers.

• Rural properties

• Self-Storage Facilities

• Senior Housing

Unraveling the Mysteries of Rural Real Estate Investment

Navigating the Unique Landscape of Rural Properties

The prospect of investing in rural real estate, with its promise of larger land parcels at affordable prices, might be intriguing.

With growing interest in remote work and relaxed lifestyles, rural properties were witnessing a surge in demand during the pandemic. Although the numbers may look better on paper, it may not always be so true.

Small Town, Small Labor Supply

The scarcity of tradespeople can lead to increased construction and maintenance costs, and potential delays. This is particularly true in rural areas where there might be a 2-3 plumbers for a town of 10,000. If your toilet floods at midnight and no one answers their phone, it could be significant lag time to fix it.

This may be a blanket statement, but most rural properties tend to be older construction. Aging property inventory can also contribute to higher than anticipated renovation expenses. Factor that in with fewer tradespeople, the cost to own and maintain a rural property may not make sense even with increased rent.

It's also worth noting that property management in rural areas can present its own set of challenges. From maintaining properties to finding reliable contractors and dealing with longer vacancies, these operational aspects require careful planning and management. For some investors, partnering with a local property management company that understands the rural market can be a valuable strategy.

Potential investors should also be aware of environmental and zoning regulations that might limit development opportunities. The zoning board might be a “good ol’ boys club” where the head of city counsel is also golf buddies with a local developer.

Understanding the Nuances of the Rural Rental Market

There are additional nuances to consider when investing in the rural rental market.

The local economy plays a big role - towns with industries like farming, mining, or tourism might have specific rental needs that differ from those of other areas.

The quality of life in rural areas can also be a selling point. Access to nature, recreational activities, less traffic, and a close-knit community are all potential draws for potential renters. Highlighting these lifestyle advantages in your marketing can help attract renters.

For instance, there might be demand for seasonal rentals in a tourism-heavy town or short-term accommodation for contract workers in mining areas. For example, housing in Breckenridge, CO was accessible to service workers about 5-10 years ago. After the pandemic, an affordable housing crisis started because tourists priced out locals who served the community.

In short, while rural areas might not be the first place many investors look to buy rental properties, those who do their due diligence and understand the unique dynamics of these markets can find profitable opportunities.

Investing in the Self-storage Niche: An Untapped Market

Unlocking the Potential of Self-Storage Facilities

Self-storage facilities have emerged as a promising segment in the real estate industry.

They offer a recession-resistant investment opportunity as people rely on these facilities during life's many transitions where people are attached to their possessions. It’s also easier to raise rents quicker and requires generally less capital expenditures to justify higher rents.

You’re able to raise value using technology and have cheaper building costs to expand existing facilities or upgrade with cooled units that charge a premium.

Supply and Demand in the Self-Storage Market

The law of supply and demand plays a significant role in the self-storage market. High demand with limited supply often leads to higher rental rates and occupancy levels.

However, low demand and an oversupply can have the opposite effect.

Remember, construction for self-storage is fairly easy, it’s just a metal box with a foundation that doesn’t need much insulation. Construction times are very quick compared to other asset classes and a market can be quickly overbuilt in a time period of 5 years.

If an area is overbuilt, average rents might go down due to concessions from new facilities trying to build up occupancy. Remember, there are different niches within self-storage like drive-up, climate controlled, and RV/truck storage as well which are all independent markets.

Moreover, high interest rates can make it more expensive to finance the purchase or construction of self-storage facilities, affecting profitability.

Leveraging Technology

Since 2009, technology has helped self storage investors reduce the need for on-site management (and thus reduce costs). Nick Huber (@sweatystartup on Twitter) talks about it a lot.

The main applications where tech is enabled is using virtual leases to rent storage units online, hiring call center reps in the Philippines and other overseas countries, and having a point of sale system to accept credit cards and digitize your financial management system.

Previously, this business was done with fax machines, cash & checks, and physically showing units.

As great as technology is, it won’t fully “automate” your self-storage facility fully. You need someone to still mow lawns, shovel snow, cut out locks, etc.

Senior Housing: A Growing Market with Endless Possibilities

The Rising Demand for Senior Housing

As the Baby Boomer generation ages, the demand for senior housing is rapidly increasing. Boomers also have the largest holders of wealth, so they are well funded into retirement.

Investing in senior housing can offer stable returns and resilience against economic downturns. There is affordable senior housing with government programs (HUD), luxury housing, and run of the mill housing.

There are also varying degrees of service from full-service with caretakers vs independent living facilities and come in at different price points with amenities too.

However, like any other specialized real estate sector, it comes with its unique challenges.

Keys to Success in the Senior Housing Market

Compliance with healthcare and accessibility regulations can add to operating costs. It is also employee-intensive and a business. You might need aides, nurses, cooks, social workers or program staff to run a basic facility.

Effective and empathetic management is essential for the success of senior housing facilities. Additionally, the location, the amenities, and price point offered play a crucial role in attracting residents.

Investing in senior housing requires a careful consideration of various factors, including location, management quality, and the specific needs and preferences of the senior population.

Remember, senior housing is not as simple as buying a single family house and putting a tenant into it. It’s a business and can also mean liabilities.

Liabilities…

Let's talk about the potential liabilities that could put a serious dent in your operation. Remember, this is just a general outline and there’s more nuance to it.

Resident Safety: Slip-ups, mess-ups, and mix-ups with medication, or even outright neglect – these can land you in hot water. Solution? Quality care, stellar training, and a hawk's eye on safety can shield you from lawsuits.

Emotional Well-being: Your facility is their home – not just a bricks-and-mortar building. Emotional distress or indignities can cost you, not just in dollars, but reputation too. Ensuring dignity and a healthy emotional environment isn't just the right thing to do, it's good business.

Privacy Pirates: Privacy laws aren’t just for tech companies. Slip-ups with sensitive resident info? Hello, legal trouble. Your best bet? Ironclad protocols and a plan B for breaches.

Employee Issues: The way you treat your staff can bite back. Discrimination, harassment, wage issues – these can turn your HR department into a legal battlefield. How to steer clear? Comprehensive policies, thorough training, and a fair work environment.

Regulatory Minefield: Lastly, senior care has more red tape than a Christmas gift. Step off the path and it's a world of penalties and potential shutdowns. The key? Keep legal counsel and trained staff on speed dial and stay on top of those regulations.

The Golden Ticket: Insurance, Insurance, Insurance! Guard against professional liability, workers' comp claims, and regulatory risks. It’s usually a good idea to have more coverage than you think you need.