I recently asked a question and was cautioned about buying properties in a declining area. The area I am looking at is declining, but not too quickly. The houses are really affordable and the renters are plentiful. It is like a perfect storm.
There are properties I am crunching numbers on that have CAP rates of 19% and cash-on-cash returns of 59% with a 25% down payment. One move in ready duplex I am looking at is $39k with a potential rent of $1k. It seems insane.
What am I missing? I understand part of the objective is to have your property appreciate over time, but when you can double your cash every 2 years, does it really matter?
Also, I believe this town will rebound. It is in a good location with a good manufacturing infrastructure. It is a prime candidate for quite a few employers to come to town in the next 5 years.
You should probably check on the declination of population rate. A declining area means it would be hard to eventually get renters; but you say there are tons of renters so there is that.
Why is the population declining @Matt T. ? Large industries migrated away? Environmental / health reasons? But then again, if these assets fit your short term goals, then go forward. Just realize you might experience increased vacancy rates in the future OR could the rebounding economy change that direction and you look like a Genius?
Static + growth = yes, declining is scary.
The population took a hit when Chrysler pulled out. It was a big blow to the community, but it also leaves a population that is in need of housing, but can't necessarily qualify for a loan.
I firmly believe that the population will rebound, it's just a matter of when.
I still don't think I will invest all my money here, but I think it would be at least some easy cashflow...
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