BiggerPockets

What do you think the future holds for cities, regions, and states that are on the "decline"?

Some of your more basic examples include cities like Toledo and Detroit - the Rust Belt.

From an investment perspective, there are undoubtedly still people investing in these areas for cash-flow.

But, we have reached an interesting point in the development of America. The original development of America started in the East and created iconic cities such as Chicago and New York and manufacturing towns in the Midwest. But the Midwest in particular, which was booming during the industrial revolution is now quite derelict (generalization) - there are no manufacturing jobs to be had anymore as they've moved overseas. This leads to unemployment, crime, decreased capital investment, decreased revenues to the city/state, and eventually decreased education quality and more and more divestment - it's like a downward spiral, or a self-manifesting black hole, if you will.

On the bright side, the population in America is set to increase exponentially during my generation. It also seems that our gov't is going to devalue the dollar to try and spur investment and blue collar job growth.

What do you think will happen to these cities and areas. Is the downward spiral impossible to break? Cities like New York have diversified largely into financial and other services. But an entire country can't live on servicing each other when no one is making anything. As our population trends further south and west, what will happen to these cities? I can't imagine them turning to true ghost towns, but at the same time it's hard to picture them breaking out of the "spiral". Perhaps they will continue to plod along with sluggish economies and population/job growth for the next 50 years?

I have been thinking about investing in such areas for cash flow, and although I may not see much price appreciation if I do, I know my investment won't just up and disappear. But it got me thinking, aside from just an investment perspective, what does the future of these cities truly hold?

Thoughts?

I agree with Brian.. Too many reasons not to invest in those areas, cash flow is generally wonderful but several of these areas include tenant friendly laws, laws that generally make landlording difficult (i've heard Detroit is notorious for these) plus my biggest problem when I looked into Detroit is you cannot control what people do around you, several properties I looked at were on "ghost" streets and no one to be the only one to live there, another problem being alot of the houses are so run down they're realistically worthless, when the cost to put a roof on the house cost more then the house, most don't make needed repairs. Areas where there are no grocery stores located near buy and major stuff like that has a huge impact especailly lower income where many people don't have cars.. Detroit has empty strip malls, and some places the distance to a grocery store is super far, cause all the close by ones closed.. These type of things scare me. I don't think the whole town will become a ghost town, but areas already are IMO

Detroit has technically been on the decline since the late 60's, so Detroit(ees) know what hard times are like and many will never ever move. Its still the 11th largest city and 5th largest metropolitan area in the country. There are plenty of people there that have and will pay their rent. If cashflow is your thing and you know a lot about the place or someone on the ground that knows, I mean really knows about the city. I can't see you being at a total loss. Its not big bucks to be made, but a steady stream income may work. As far as coming back, humm, the manufacturing mentality has to be lost and forgotten before they can go forward. Until that happens they're gonna be in a very tough position I believe.

Great to get a perspective of someone living in a declining area. I think we will see change over time in many areas of the country. It is quite possible that large cities like Detroit may lead the way in change once the problem gets bad enough.

Knowing your market is extremely important and it sounds like you better be well aware of micro-markets in the Detroit area.

The Seattle area was faced with huge unemployment in the 69 and 70 when Boeing was forced to layoff so many employees. The area was hurt because Boeing and related businesses were the primary employers in the area. Since that time there has been a large shift to other businesses such as high tech and Biochemical. Of course there has also been a bad trend toward more government employment.

Boeing's headquarters is no longer in the Seattle area. A number of plants were moved out of state as well. There was quite an uproar here when Boeing was trying to get tax concessions for building the Dreamliner here.

I suspect there will be some kind of Boeing presence in the state for many years. Boeing maintains a couple of large production plants, an airport and numerous office buildings.

Politicians love to tax and otherwise place controls. Like CA, WA has seen businesses move because the cost of doing business here is to high.

Yes, the Dreamliner production moved to South Carolina.

Washington has no state income tax either, but it has a high sales tax, property tax is quite high and many different excise taxes.

Back to the rust belt.....

No guts, no glory!

As Charles said, knowing your market is extremely important!

It goes to the old saying about real estate being location, location, location!

IMO, starting a real estate investment business, being any strategy, begins not with any strategy or property, but with an analysis of regional economics, at a state level, then to the community level, then to neighborhoods. Selecting the optimum RE strategy should be based on basic economic functions. Some areas will provide the highest return in providing low/moderate income housing, rentals and sales. Some might be building hihger end custom homes. They area dictates the market.

Not only do economic functions set the stage, but social and governmental aspects need to be evaluated too. If an area has a reputation of being made up of a particular social class, speculating to change that perception to another group might not be successful. If governmental support is not there to support growth, as mentioned above, higher taxation or very restrictive zoning will effect limitations on the market.

I'm not familiar with Detroit, but I know there is opportunity there. I know that the Governor of MI. is working hard to change investment and update the area to high tech manufacturing and support industries, The golden lining will be identifying properties that are not being used to their highest and best use, a bargin wharehouse that can be converted to solar panel manufacturing or building wind generators....whatever.

If commercial properties are at a low, the requirement for capital will be less and should provide lower rent levels. That should mean that new startup businesses can start out with lower overhead, which leads to jobs and needing a place for workers to live.

Buying a commercial or industrial building in Houston, for the sole purpose of leasing it out, might be a tough road. Competition for such space will be stiff and premium prices might mean slim profits. It's probably at least possible to get twice the space for nearly half the money in Detroit. A good commercial broker does not begin by looking for properties, they begin by looking for businesses that can or should expand, then fill the need with a property that works.

Short of a disaster, I don't think any major city will become a ghost town. At some price point, someone will move into almost any property, barring toxic dumps, etc.

So, are areas of Atlanta hot? Sure they are! Is Detroit a good place to invest? Sure it is!
Depends on location, location, location.

And, lastly, the potential for profits is could be more in the rust belt than in the sun belt. Thinking that an area is in the growth stage and paying a premium can be more speculative than buying in a more stagnet, known area. Las Vegas comes to mind. Look at bthe history of the town, rising up from a desert, to the number one tourist trap, to the rate of foreclosures today.

The state income tax did not pass fortunately. They have tried to get this in several times. I state still is one of the highest taxed states anyway. Sales tax is 9.5% in general and 10% for restaurants and lodging. The state came up with the idea it is better to tax visitors more. There is talk that sales tax will be increased. When all taxes are added in Washington is in the top 10 states as far as taxes goes. Looks quite likely that sales tax will be going up some more.

Many cities with manufacturing bases will have tough decisions down the road. It make get difficult as it has in Detroit, but I expect many will find other ways to survive.