I live in North Dakota, and I came across an apartment complex for sale in one of the state’s oil-heavy cities. I was wondering if anyone here has invested in a similar situation—where most of the local tenants work in just one or two dominant industries, like oil. The city itself isn’t small, and there are plenty of residents with other types of jobs, but I’m curious to hear from anyone who’s invested in a market like this and what their experience was like.
I've financed ~600 multifamily units across 3 large apartment complexes located in the Dakotas (Williston, Dickinson) and Wyoming (Gillette).
Financing is less plentiful / available in markets like this. Reason being, the oil industry is inherently more volatile and less predictable than "steady Eddie" coastal/midwest markets with diversified employment sources, and this has a tendency to scare "normie" lenders who just want clean down the fairway deals with easily quantifiable risks.
When oil busts, these towns fall apart and tenants up & leave. IE - you need to manage your leasing risks and be on top of the market especially when oil busts, because half your tenancy is prone to "up and leave". You're essentially layering cyclical commodity risk on top of standard multifamily risk which is why its such an interesting play. But if you time your bet correctly and scoop up assets in oil bear markets - can make good money.
HUD will finance multifamily deals like this via their 35-year term 223(f) loan - which is great for longer term oriented investors who want to maximize leverage at ultralow rates (low-mid 5.00% rates plus 25bps MIP).
Freddie & Fannie will selectively finance deals in these markets as well, but they have to like the asset / location / sponsorship.
Otherwise CMBS lenders and regional banks/credit unions who are familiar with the local risks will lender in these markets.
I haven't ever invested in a market where one industry is pretty much the main gig in town. But I would usually caution people not to invest in these types of cities. You really want to find a market that has a pretty diverse market. I had a friend that invested in many homes in a small town where they really only had one large factory. That place disappeared and he was left with empty houses. See if you can find out why this apartment property owner is selling