Buying Houses in an Economically Depressed Area

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I currently own two rental units in an economically depressed area. The rents are about as high as the market will allow ($400/month), yet I'm barely making more than the cost of the mortgage ($700/month). The units are fully occupied and in decent shape...I actually enjoy the work so I have no plan to sell at this time.

I'm in a suburb of a northern "rust belt" city.... The area I live is losing population every year... there are no jobs here (besides retail sales jobs and government jobs)... taxes are ridiculously high... the climate is cold... houses are ridiculously cheap (I can buy a waterfront house with a boat dock for 170k; I can buy a single-unit fixer for 30k).

Now.... my question is this.... I enjoy buying houses, taking care of them, and collecting rent checks. I enjoy being a landlord. BUT, I'm wondering, is it smart for me to invest in another rental house in this market?

Thanks for any opinions.

[Richard Warren]

Is there any hope of the area turning around? If you are buying fixers can you rehab them and sell at a profit? If not, look elsewhere.

8)

[Ken Hicks]

not sure of your goals but if you can buy a house with $10,000 down and the house appreciations 10% A year (which is possible if you do your homework). The value of the home is $100,000 appreciates 10% then you made your $10,000 back in one year. then when the town slows down, you sell maybe in 5 years and make $30,000- $50,000. Easy huh? buying in an area that is declining doesn't make sense. but as long as you cash flow it should be good.

[Judy Ryon]

Are the property values declining in your area?

If you are buying in a depressed area, people are leaving, no jobs, who are you renting to? Are tenants hard/easy to find?

I guess if you buy right (below market value) and if the market is declining, you need to buy that much more below value as a cushion. If the property cash flows, the tenant is paying for your house for you. This is not a horrible situation if it stays occupied. If you like the J-O-B of being a landlord then, that's ok too.

What happens if your tenants leave and you can't replace them? And you might have a hard time selling these houses too.

On the other hand there are lots of other areas in the country that are thriving, property values appreciating. I prefer to focus on those markets, and have a property manager handle the rental management.

[Michael Rossi]

Fireboat,

The rental property business is all about the numbers. If your gross rents are barely above the mortgage payment, that is a recipe for failure. You might be able to keep going with 2 rentals, but you wouldn't survive with 50 rentals like that. The reality is that if your rent is barely above the mortgage, you ARE losing money - you just might not realize it yet.

I would suggest only buying at a HUGE discount. If the area is depressed; people are leaving; and rents are low; then you need to buy very low.

I live here in Ohio where the state government has caused an exodus of good jobs over the past several years. According to press reports I've seen, our taxes are the 3rd highest in the United States (although I'm not sure I believe that). I just bought two 3-bedroom houses yesterday for $25,000 each (no significant repairs needed). They will rent for $550 each. That's the kind of numbers you need in a tough market.

So, to answer your question, yes I would probably keep buying but I would be looking for a VERY LOW purchase price. Do a cash flow analysis for each property using real world expense numbers.

Good Luck,

Mike

[Tom C]

I agree with Mike. I also live in Ohio and just purchased a 3 brd nice little brick 2 story for 23K. Tax access value at 53K. I will have about 3K in it to make it rentable and due to the location in the city, I should be able to get $550 to $600 a month in rent. This city will be on the rebound in the next few years hopefully and even if it doesn't, I am not losing. I can always get my money out of it if I need to. Keep in mind that there are hundreds of houses that range from 10K to 30K in this area, just not all of them are in such a great location and are in as good of shape. It took around 20 walk thru's to find this one. Many people from out of state are looking at this area and are relying on PM's to provide feedback on these properties. I have lived in this area all my life and I know the city. You really need to do your homework when buying property in these types of area's.

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Fireboat sounds like your describing Detroit, because I live in a suburb there. And I say don't give up so easy things will turn around eventually. I would try and buy low like others have said, but wait for your mortgage to season and then take the cash out of your house so you have the reserves should something go wrong, also if the the value decreases you have the money in your pocket, and if it jumps up you can always refinance. I think your money can do better things for you as a cash asset rather then as equity in a house that may lose value. Just my take.