Underwriting deals in declining markets
Any investors out there knowingly investing in markets in general decline?
My hometown is effectively a rust belt city. Population is exactly the same as it was when I was born and median income has stayed relatively stagnant. However the deals I have done there were really easy to diligence because I know the town, and I now have a great property manager who keeps finding me neat deals (he also shoots down a lot so I know he is honest).
I have made a concerted effort to diversify my exposure into cities with more promise, but so far it has been a lot of work with little treasure. In the meantime, my PM keeps finding attractive deals in my hometown. I have ignored them for some time, but any deal is a good deal at a certain price - it just means staying conservative on underwriting.
What do people in barely stable/declining markets use as underwriting rules of thumb? Some thoughts on areas to be more conservative:
- LTV
- Rent growth assumptions (I always assume 0% - should we be thinking about declining rents?)
- Cost growth assumptions
- Vacancy
I would love to hear from people with experience in barely stable/declining markets. Thank you for your contributions.