Purchasing a rental property in a town with a decreasing census?
Somerset, NJ · Member since 2016 · 33 posts · 13 votes
Purchasing a rental property in a town with a decreasing census?
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Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7yI’d rather buy a house for 50 grand and make 800-1000 a month in rent equating to 300$ Positive cash flow per month in my pocket and have the tenant pay it off free and clear for me regardless of the economy ...then to spend 300-400 grand on the same size house in a hot market , have negative cash flow each and cross my fingers it’s still worth 400 grand or able to be renting when the economy is in a crisis. Speculation /appreciation is nice but never paid my bills .when the economy is down its easier to keep a modest house renting for 700-1000 then needing to get 3,000+ in rent to keep above water . Those hot markets were the ones who get Hammered in a recession . No one ever talks about that . Seems They all look at potential appreciation.
30 Replies
- 7yJeremy TaggartBusiness MemberReal Estate Agent · Pittsburgh, PA · Member since 2014 · 850 posts · 646 votes
@Daniel Rivera If you're investing primarily for cash flow I wouldn't sweat it. Rust belt areas are perfect for that. It's decreasing here in Pittsburgh too statistically but plenty of us are making money here.
DHRE- The Jeremy Taggart Team590 Reviews - Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes7y
@Daniel Rivera Agree with Jeremy above, knowing the area and having people you can trust manage the property are key success factors. It's similar to me, I grew up and invest in VT (but now live in CA), as I know the area well. The cashflow is good although the appreciation is not.
Good luck!
- Tom
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Excellent-thank you both for your perspective. Truly appreciated!
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes7y
I have a contrarian view. I believe that small midwestern towns that are in decline are not going to create value in the long run. Go where people want to be.
Next, some of those towns may have a weak rental market.
- Investor · Cincinnati, OH · Member since 2016 · 34 posts · 16 votes7y
Isn't the census data 8 years old at this point, or are you looking at something else?
- Realtor · Las Vegas, NV · Member since 2018 · 218 posts · 147 votes7y
Can you elaborate when you say "value"? Obviously in small midwestern towns, cash flow is king and the only factor, as we all know there's little to no meaningful appreciation..
I invest in a very very similar sleepy depressed town, so your answer somewhat applies to me as well.. As long as the numbers (price and rents) make sense, not sure why it matters if its a place where people want to be or not?
The town I invest in hasn't changed in 20 years, and will prob never change.. Steady Eddie as some would say, definitely not sexy though..
- TX · Member since 2018 · 154 posts · 92 votes7y
@Daniel Rivera
I just bought a property in Xenia, Oh in December. I analyzed it and it was renting for 2% rule after paying utilities. I think as long as the numbers work, go for it.
The worst that can happen is that you lose a little bit of money and learn a valuable lesson. I’m waiting for my first distribution from my property manager. Feel free to PM me to get updates.
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes7y
Originally posted by @Brandon Carriere:
Can you elaborate when you say "value"? Obviously in small midwestern towns, cash flow is king and the only factor, as we all know there's little to no meaningful appreciation..
I invest in a very very similar sleepy depressed town, so your answer somewhat applies to me as well.. As long as the numbers (price and rents) make sense, not sure why it matters if its a place where people want to be or not?
The town I invest in hasn't changed in 20 years, and will prob never change.. Steady Eddie as some would say, definitely not sexy though..
I'll chime in on this one. And this isn't to say your property won't continue to be successful or whoever's. But in general, it can matter if it's a place people want to be or not because of- sustainability of those numbers. You can project numbers all day long and even get them for a while, but are they sustainable? Take Detroit as an extreme example. People owned properties there, all was good and gravy for cash flow, and then boom the city tanks and everyone moves out of it. Now the only people who were left to rent were making meth. (exaggeration but true to some extent). So either property owners couldn't get renters or got terrible ones who destroyed the property.
So the concern, anytime you are talking about a declining market is the factors involved with what it will take the numbers to stay where they are. Will there always be a tenant pool, can you always get quality tenants who won't trash the place, etc.
Old article, but goes into more detail-
https://www.biggerpockets.com/renewsblog/declining...
Again, this won't always be the case and the town the poster is referring to may be completely fine and profitable to invest in. But to answer your question- those reasons are why it matters and should be looked at.
- Los Angeles, CA · Member since 2018 · 95 posts · 46 votes7y
I would second @Ali Boone in that you should be careful investing in rust belt cities
Your main job as an investor is to keep your money safe, and even though the numbers look great on paper the tenants are usually poor quality in these places. With a recession around the corner, most investment funds / smart money park their money in high wages cities like in Texas or safe havens like washington DC where you got high paying government jobs
It looks like the only thing going on in cities such as Detroit and Cleveland is real estate pumped by out of state investors. Turn key rentals businesses, realtors and flippers are for sure making a killing for now but my guess is that many of their buyers will be holding bags within a few years when the economy takes a hit
- Lender · Southwest Georgia · Member since 2017 · 312 posts · 278 votes7y
@Daniel Rivera Unfortunately it all depends. I grew up, still live and invest in rural South Georgia, where most all of the areas have decreasing populations but you have to dig deeper to know what type of demographics are actually decreasing.
The middle income demographic has been consistently steady the whole time it’s the high earners that are moving out for multiple reasons which is causing your A+ properties to suffer. While your blue collar properties have been able to do fairly well.
I will say though, that when looking at your data, make sure that there is a variety of industries in that area. For example, healthcare, education, manufacturing, etc. You can put yourself at risk if it’s heavily centralized in one industry. IE: Detroit
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Originally posted by @Brian Ploszay:
I have a contrarian view. I believe that small midwestern towns that are in decline are not going to create value in the long run. Go where people want to be.
Next, some of those towns may have a weak rental market.
Thanks Brian. Appreciate your view on this, and by value I'm assuming you mean appreciation over the next 20-30yrs? In your experience what states do you believe show better promise of appreciating over the long term in addition to cash flowing positively?
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Originally posted by @Nathan Currier-Groh:
Isn't the census data 8 years old at this point, or are you looking at something else?
Looking at census data from 2010 to 2017 for that specific town-found it on the US Census Bureau website.
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Originally posted by @Brandon Carriere:
Can you elaborate when you say "value"? Obviously in small midwestern towns, cash flow is king and the only factor, as we all know there's little to no meaningful appreciation..
I invest in a very very similar sleepy depressed town, so your answer somewhat applies to me as well.. As long as the numbers (price and rents) make sense, not sure why it matters if its a place where people want to be or not?
The town I invest in hasn't changed in 20 years, and will prob never change.. Steady Eddie as some would say, definitely not sexy though..
I'm assuming he means appreciation growth when referring to value. Thanks for you input-greatly appreciated. I was also looking at Tennessee and found a similar theme-cash flows well, but definitely no appreciation over time. Was asking about the census data because I heard on a recent BP podcast episode that you should look into investing in places where there is growth (job, population, etc.) to get the best bang for your buck. This will be my first property so I'm more looking to get the experience under my belt (with positive cash flow), but also wanted to make sure I wasn't being foolish entering into a market with a decreasing population even though the numbers made sense.
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Originally posted by @Ariel K.:
@Daniel Rivera
I just bought a property in Xenia, Oh in December. I analyzed it and it was renting for 2% rule after paying utilities. I think as long as the numbers work, go for it.
The worst that can happen is that you lose a little bit of money and learn a valuable lesson. I’m waiting for my first distribution from my property manager. Feel free to PM me to get updates.
Awesome-thanks for your input! I'll definitely keep in touch with you-be interested to see how things work over the next few months. Thanks for the offer!
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Originally posted by @Ali Boone:
Originally posted by @Brandon Carriere:
Can you elaborate when you say "value"? Obviously in small midwestern towns, cash flow is king and the only factor, as we all know there's little to no meaningful appreciation..
I invest in a very very similar sleepy depressed town, so your answer somewhat applies to me as well.. As long as the numbers (price and rents) make sense, not sure why it matters if its a place where people want to be or not?
The town I invest in hasn't changed in 20 years, and will prob never change.. Steady Eddie as some would say, definitely not sexy though..
I'll chime in on this one. And this isn't to say your property won't continue to be successful or whoever's. But in general, it can matter if it's a place people want to be or not because of- sustainability of those numbers. You can project numbers all day long and even get them for a while, but are they sustainable? Take Detroit as an extreme example. People owned properties there, all was good and gravy for cash flow, and then boom the city tanks and everyone moves out of it. Now the only people who were left to rent were making meth. (exaggeration but true to some extent). So either property owners couldn't get renters or got terrible ones who destroyed the property.
So the concern, anytime you are talking about a declining market is the factors involved with what it will take the numbers to stay where they are. Will there always be a tenant pool, can you always get quality tenants who won't trash the place, etc.
Old article, but goes into more detail-
https://www.biggerpockets.com/renewsblog/declining...
Again, this won't always be the case and the town the poster is referring to may be completely fine and profitable to invest in. But to answer your question- those reasons are why it matters and should be looked at.
Thank you, Ali! Appreciate your input and for the link to that article. Makes total sense with regards to sustainability over time vs the present numbers that are being projected. Thanks for the perspective.
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Originally posted by @Account Closed:
I would second @Ali Boone in that you should be careful investing in rust belt cities
Your main job as an investor is to keep your money safe, and even though the numbers look great on paper the tenants are usually poor quality in these places. With a recession around the corner, most investment funds / smart money park their money in high wages cities like in Texas or safe havens like washington DC where you got high paying government jobs
It looks like the only thing going on in cities such as Detroit and Cleveland is real estate pumped by out of state investors. Turn key rentals businesses, realtors and flippers are for sure making a killing for now but my guess is that many of their buyers will be holding bags within a few years when the economy takes a hit
Thanks for the advice! I started my search in this area looking to flip because I had seen a few going on over the last year I've been in and out visiting the area, but so far haven't found any deals that would be worth to flip so started looking at rental properties. Thanks for your input.
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
Originally posted by @J. Mitchell Bernier:
@Daniel Rivera Unfortunately it all depends. I grew up, still live and invest in rural South Georgia, where most all of the areas have decreasing populations but you have to dig deeper to know what type of demographics are actually decreasing.
The middle income demographic has been consistently steady the whole time it’s the high earners that are moving out for multiple reasons which is causing your A+ properties to suffer. While your blue collar properties have been able to do fairly well.
I will say though, that when looking at your data, make sure that there is a variety of industries in that area. For example, healthcare, education, manufacturing, etc. You can put yourself at risk if it’s heavily centralized in one industry. IE: Detroit
Thanks, J. Great point-seems to be the high earners that have been decreasing in the town leaving more blue collars. The town used to be huge in manufacturing, but over the last 15-20 yrs a lot have closed down and theres been a boom in healthcare jobs with a large healthcare system (ProMedica) moving in and taking over the hospital, doctors offices, etc. Thanks again for your input.
- Somerset, NJ · Member since 2016 · 33 posts · 13 votes7y
All-thank you for your feedback. Excellent points that have given me food for thought and more homework to do. Your opinions and perspective are invaluable!
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes7y
@Brandon Carriere
@Ali Boone
I've seen some depressed areas in my city and mused about the investors who had bought them in the 80s and 90s. Ali's Detroit example is good. The prices or "values" actually declined substantially. Here is an example how investors really made money. And this this is something Ali would appreciate. I grew up in California and Venice Beach was somewhat run down - or at least far cheaper than it is today. Landlords who bought in Venice made money.
Now, I do invest in lower income neighborhoods that have good rental markets. But I buy the properties distressed and cheap. Reconstruct the properties and rent them out. I still think there is better long term value in certain better areas, but it is a problem of affordability for this investor. Real estate takes a lot of capital...
- Los Angeles, CA · Member since 2018 · 95 posts · 46 votes7y
@Brian Ploszay
Venice has assets Detroit clearly don’t.
Industries and people have been moving in LA for decades whereas the opposite keeps happening in rust belt cities. I may be wrong but I hardly see Detroit becoming all the rage in the next decade. The demographics of the past decade show that people are migrating to southern & western states
- Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes7y
Wouldn’t worry about it much . If the deals good go for it ! People in that town (or any town )will always need a place to stay and most of them cant qualify for loans ...and It’s not like next year the place will be one an abandon ghost town .
- Dallas, TX · Member since 2016 · 1k+ posts · 745 votes7y
Originally posted by @Account Closed:
@Brian Ploszay
Venice has assets Detroit clearly don’t.
Industries and people have been moving in LA for decades whereas the opposite keeps happening in rust belt cities. I may be wrong but I hardly see Detroit becoming all the rage in the next decade. The demographics of the past decade show that people are migrating to southern & western states
Maybe, but I think it hit rock bottom a few years ago.. Detroit has some very strong investors, and some REALLY cool architecture, and a lot of skill sets that might translate to specialty manufacturing and high tech.
The leadership after decades of terrible corruption seems to be a improved.
- Specialist · San Francisco Bay Area · Member since 2018 · 221 posts · 160 votes7y
@Daniel Rivera
If your investment value (appreciation) cannot keep up with inflation (3%) then the cash flow (cash is king or cash on cash only mentality) is not true, it is far less. It’s much safer to find markets where population is on the incline (even mildly) so that you can safely bet on appreciation at or above the rate of inflation.
I see many newbies on BP investing in rust belt states without any concept of inflation adjusted returns. All they care about is cash on cash.
That’s not a prudent nor pragmatic way of investing. However, it is just my opinion. Others will disagree.
- Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes7y
Leave it to the accountant to point out the turd in the punch bowl, LOL.
I see many newbies on BP investing in rust belt states without any concept of inflation adjusted returns. All they care about is cash on cash.
That’s not a prudent nor pragmatic way of investing.
- Specialist · San Francisco Bay Area · Member since 2018 · 221 posts · 160 votes7y
Originally posted by @Lee Bell:
Leave it to the accountant to point out the turd in the punch bowl, LOL.
I see many newbies on BP investing in rust belt states without any concept of inflation adjusted returns. All they care about is cash on cash.
That’s not a prudent nor pragmatic way of investing.
I take no offense
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