Investing in a dying city – future loss of equity?

[Gary Dezoysa]

I plan on beginning my investing career by relocating to Ohio. Cleveland, Akron, Toledo, one of those cities. In each one you can find houses going for $20,000. Of course there's a reason – continuous population loss going as far back as the 1960s.

I know not to expect appreciation. I also know cash flows will be good based on my calculated numbers and what other investors are reporting in the area. Hard to go wrong cashflow-wise when you're buying a $25,000 house that rents for $650 a month. 

What I'm concerned about is losing equity, and having that $25,000 house go to $5,000 and then become un-rentable. That's the one thing that could turn my plan of  starting with high cash flowing  properties, and then scaling into bigger and better projects --  right on its head.

Perhaps somebody can comment on the likelihood of a house going to zero or becoming unrentable. I've heard Detroit is like that, I'm not sure what other case studies we have or how likely the scenario is.

Thanks for your thoughts

[Ryan Pyle]

Even in Ohio, you get what you pay for. If a property is under $25k that usually means it's in an undesirable neighborhood. Yes, you can buy houses in Toledo all day long right off the MLS (because all of the local investors have passed on them) for $5k, $10k, $20k...pick your number. And yes, they will rent for $600/mo. But you will need to adjust your NOI downward along with the price to reflect higher vacancy, higher repair costs while the tenants are living in the house (because they live hard and don't have any extra money to pay for the things they break so you end up footing the bill or kicking them out), higher turnover costs due to the previously mentioned lifestyles, and certain vandalism that will occur which includes, but is not limited to, stripped pipes, stolen hvac, stolen hot water tank, stolen wires, stolen kitchen sink, etc. @Nathan Astrup is very correct when he says you should plan on paying more like $40k. Yes you will still only rent for $600, but I guarantee your NOI will be much higher.