The Midwest Rust Belt

[Jimmy H.]

I have been researching different markets around the country. Most will be quick to reccommend TX, AZ, FL, and CA.

As far as cash flow goes I don't see anything in those areas resembling the type of cash achievable in areas around the midwest rust belt (please correct me if i'm wrong). I do not want to completely sacrifice LT appreciation for cash flow, but for me, cash flow is king.

I know people like MikeOH makes his living here but I do not want to have to personally roll around with a .357 to collect rent. I want enough CF to hire property managers in the area and factor that in as a cost.

What do you think about the long term potential and demographics in the area. I tend to be a contrarian and when all of the focus is in TX or elsewhere I think the best deals will be find where most aren't looking. Opinions on the area, and why/ or why not invest there? I have been looking specifically at OH.

[Vikram C.]

Nothing is free. The higher cash flows in the declining parts of the country come at the expense of long-term appreciation. You could even have increasing vacancy rates in some of those areas. Obviously, as with any large area, there will be many good opportunities for the smart investor. But the Mid-West, in general, seems to be on a path of long-term decline.

This also makes sense when you look at the economy. The proportion of people involved in agriculture has steadily declined from 41% of the population in 1900 to 1.9% in 2000. Agriculture is very land-intensive and required people to spread out throughout the country wherever there was arable land.

The only reason why so many people live in the Mid-West is because they happen to already live there. If the U.S. were virgin territory being populated today, the Mid-West will have far fewer people than it does today.

Today's service-sector jobs can be located anywhere and they will increasingly be located in places with better climates. That's why the Sun-Belt states have good prospects and the Rust-Belt does not. If you can buy newer properties at less than construction cost in the growing parts of the country, you can pretty much be certain of appreciation as the population increases and the excess supply of homes disappears.