How do you feel about economically depressed/stagnant regions?

10 Replies

I would like to know how the more experienced members feel about cities which have chained very little in the past 20 years. If you would like a specific context, The Dalles Oregon.That’s the town I grew up in and am thinking of investing in. It’s a demographically old dirty city with almost no growth in both population and employment over the past 20 years. About 10 years ago one of the top employers closed down severely damaging the city financially.

With that being said it is still the primary city for about 80 miles in all directions. The primary things keeping it alive are the dam, the medical community (one of the top athletic doctors in the nation works there) and a Google research facility. I don’t see the city ever improving nor do I see it dwindling either.

I know I make it sound pretty bad. However, I do have reasons to invest there. First, I recently moved back and thus would be investing in a familiar area. Second, rentals here are expensive and if I can get some cheap properties I know I can make money providing low-income housing of which there is almost none. Third, have you seen the prices in Portland Oregon?

@Mason V.  while I dont know your area, if you feel its okay and not going down in population people will need a place to stay, they will want a nicer place if they can get it, and you prob have no competition. So if you buy rentals (they need) and do small flips (they want) you should do well. 

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Originally posted by @Mason V. :

I would like to know how the more experienced members feel about cities which have chained very little in the past 20 years. If you would like a specific context, The Dalles Oregon.That’s the town I grew up in and am thinking of investing in. It’s a demographically old dirty city...

 Mason, it sounds like you've got a good start on the demographic analysis.  You definitely have an advantage by having lived there - other investors would see it in the way you described above, but being on the ground and having personal knowledge with the community gives you a real edge.  I asked the small town question in one of my forum posts awhile back and, from the answers I got, decided that there is no problem with small towns as long as I study the market and determine that there IS a market.  You've already done that, but to take it one step further, maybe you should find another landlord/investor in the area, call them, and just ask some honest questions about the Market there.  Who knows, you might find a problem to solve and a willing seller.  Good luck.

Mason, take this with a grain of salt because it's purely from my own personal bias, but The Dalles is located in a kickass location for various attractions. It may not be Portland, but look around you, you're in outdoor wonderland that attracts people for mountain biking, hiking, cycling, kiteboarding, etc etc etc. It also is a great location for wine and beer tourism. I know whenever I'm bombing around the Gorge with friends at wine tastings I'm not the most inclined to head back to Portland by nightfall. And on top of all that, you're on the sunny side of the mountain!

I would explore those markets as they might be more robust than your long-term renters market. If you get something up and going, let me know, I'll bring my bike and be your first guest. Good luck!

I don't know anything about Dalles, OR but I'm intimately familiar with the decaying towns left behind as the steel industry in the US went from world dominance to bankruptcy...

With no population growth, no income growth, no job growth, RE appreciation doesn't factor in. In these areas, the only RE play is cash flow. Develop a business model that caters to a specific niche that you know well (ie. hospital workers, traveling pilots, students, folks in recovery, tourists, ex cons). Whatever you pick, make sure that you will be able to meet their needs better than anybody else. A competitive advantage is essential in a market where your potential customers are few.

If you're going to do rentals for low socioeconomic tenants, keep in mind that it is a very hands on type of landlording. Turnover, repair, and collections will be higher than typical. Forget about the 2% rule (rent / purchase price) in areas where no RE appreciation is expected. To compensate for the risk and increased expenses, you want 3-4%. So a $30,000 house should rent for $900-1200/mo. 

The investors who are successful in these type of areas tend to have a blue collar approach to things. Or they partner with someone who does and quickly grow the business large enough to support it.

I second what Neal C. said. You are also a 30 minute drive from Hood River which as you know is called the wind surfing capitol of the world. Lot of tourisms from all over the nation and world. You might consider something like Vacation rentals there. I often have. 

I honestly think you have an advantage because you are limited to a fairly focused area. Here in portland its difficult to have laser focus on only a few areas. Just because prices are higher I wouldn't count Portland out of the cards either. If you were to do business here the distance would prevent you from wasting time, and keep you far enough away from any rentals to keep you from self managing and going crazy=)

Before you make up your mind about low income housing make sure you interview as many landlords that are familiar with it as possible. 

Mason, if I were you, I'd proceed, but figure out how to diversify.  I have 5 low income properties in the same small town with the same lack of appreciation.  I'm wishing I had not concentrated so much in one 40 block area, as much as I love the struggling neighborhood.  One approach is to purchase a low income in the Dalles, a higher end to use for vacation rentals marketed to tourists in the area, and something in an appreciating area like Portland, and continue with that pattern to get a mixed portfolio.

@Mason V.  

One of the biggest constants in my investing life is an unfailing belief in regression to the mean. In kind, I do believe that many (not all) of todays depressed areas are tomorrow's areas for growth. This is for no other reason than low buy price creates opportunity for more investment (rehab, new construction, business incentives). 

With that said. Here are some of the reasons (in order) that I think can make a depressed/stagnant region unattractive:

- Government. Regressive policies on property tax and business keep new money from entering a region. Don't believe me? We're spending a lot of time looking for reasonable acquisitions in Paterson, NJ. That's a town that would be crawling with investors if it was not for NJ's ridiculous tax assessments. High corporate taxes create a great cost barrier for new employment and industry entering a region. The combination: companies can't move there, employees can't live there: no growth.

- Massive downshift in population. The Census bureau has great information for this. Population changes don't happen over night, so see the shift.

- No possibility for employment. Section 8 can be nice, but it's likely just older adults and for a period. If there really is no way to employ people in the region, then it will inevitably decline.

- Generally unattractive/ill repaired housing stock. One of my primary catalysts for interest in Trenton is the fact that the property there is quite beautiful. Other areas evoke a memory of place people lived for a period, or were hoping to get away from. Not saying you have to look for the bell of the ball, but be assured that people may want to live there one day.

@Mason V.  I agree with several of the other "locals"....and I completely understand your description.  Klamath Falls, down the road a piece, has the same, unenviable reputation...despite the fact that, geographically, both towns have STUNNING scenery and outdoor appeal.  I maintain that the only difference between us and say, Bend, is some short-sighted city councilmen, mayors, or others in position of influence.  Taxes are a big turn off, and neither city has embraced the outdoor tourism that could completely revitalize the area (like Bend has).

That being said, I am seriously thinking about getting some small buy & holds here.  The housing market is completely in the toilet here (if you're trying to sell).  I interviewed for my job in March of 2014 and MANY of the same houses the realtor showed us during our tour of the city, are still unsold.  Lots of foreclosures available.  There is a military reserve base here, so I know there will always be a small, but steady, stream of decent renters available, if I choose my property carefully.  You can likely do the same. Good luck!!!