Volatility is Profitability... Unfortunately

Investor · Duluth, MN · Member since 2015 · 70 posts · 22 votes

I have had interesting experiences investing in two separate markets that were heavily impacted by specific industries that tend to fluctuate. Resource extraction is always political and cyclical. One was a secondary oil town in west Texas and one was a mining town in northern Minnesota. Does anyone else invest in smaller more volatile markets that are heavily impacted by one primary economic driver? Does anyone know of any markets that have halved or probably will halve in the next six months? Just curious, thanks!

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Divin KanyamaBusiness Member
Accountant · Seattle, WA · Member since 2025 · 200 posts · 61 votes
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@Forrest Holden , Markets built around one dominant industry can offer strong cash flow during an expansion, but they require a different level of caution than diversified metros. The biggest risk is not simply that employment is cyclical; it is that jobs, rents, home values, contractors, lenders, and buyer demand can all weaken at the same time. In those markets, a property that looks inexpensive may be priced for risks that are not obvious in the trailing numbers.
From experience owning properties, I would underwrite these areas using lower rents, longer vacancy, higher reserves, and an exit value based on a weak part of the cycle—not peak conditions. I would also study the largest employers, project or mine life, commodity sensitivity, population trends, housing supply, and what demand exists if the primary industry contracts. I would be cautious about naming any market that will halve within six months; if that outcome were reasonably predictable, it would likely already be reflected in pricing and financing. A better question is whether the investment still works if values fall sharply, rents soften, and selling takes much longer than expected. Single-industry markets can work, but the margin of safety matters more than the headline return.
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Forrest HoldenPro Member
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Investor · Duluth, MN · Member since 2015 · 70 posts · 22 votes
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@Divin Kanyama

This sounds a little too much like AI. I've owned ten different properties in four different markets since 2014. While I agree with most of what you say, I disagree that housing gets "priced in" in the way that other assets do. Housing is personal and emotional and it can take a very long time for large economic impacts to show up in housing values.
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