STORY TIME: What happens when a small town goes downhill?

Question

Have you ever invested in an area that went bad? Major employers leaving town, big layoffs, etc.

What happened to your rental properties? How did you react? Were you able to stay profitable?

What is your advice to someone investing in a small town (pop. 35,000... okay, not THAT small) where a couple of large companies in the same industry provide the majority of middle-class jobs?

@Melanie Tribble @Sean Duncan @Deren Huang @Jeff Gonzales You might be interested...

David Dachtera · Answer

@Bettina F.,

It has long been said that part of the path to wealth is to "Watch the crowd, go in the opposite direction".

When others are selling, buy. When others are buying, sell.

Bettina F. · Answer

This is a story from my childhood..... I grew up near Lompoc, CA.  The major industries were agriculture and Vandenburg Air Force Base, which is where the missiles for the space race and cold war were test launched over the Pacific, and a federal prison.   Lots of 1970s middle class tract developments where the military families and civilian workers lived.   Then Carter was elected President, he cut funding for aerospace, and the bottom fell out of the housing market.  You literally could not give a house away.

My mother was an elementary school teacher.  She would come home and talk about her work.  Her principal started buying up the abandoned houses in the neighborhood near the school.  People laughed at him, but he persisted.  The local prison went from being for "white collar Watergate-types" to gang-bangers from LA.   California realized it would be cheaper to house the prisoner's families (all on welfare) in depressed Lompoc rather than high priced LA.  The principal started filling his houses with prisoners' families (now I realize probably Section 8).  He had great cash flow.  4 years later, Regan was elected and funding was restored to the space program.   Real estate prices rebounded, the principal made a fortune.  He was an honest to God millionaire in the 1970s.  His name was Wally Fuller.

To this day I do not know how he had the foresight to do this.

Mike Reynolds · Answer

In my town of 30k the college built a smooth 3000 units and rented then cheaper than the going rate. Now we have vacant house for sale/rent. The upside here is that it is causing a lot of commercial building that will be coming up. Super Kroger/HEB. Commercial office space and hospital add ons. Enrollment is around 12000 and the college of trying to double that with a new STEM building and planetarium.

Two to three years it will even out probably.

Andrew Johnson · Answer

@Tim Johnson There's a town near where I invest that boomed up during the gas/oil/fracking/etc. push and semi-crashed when that came to an end.  What's left is a little bit of an interesting scenario.  You have a lot of nice little suburban style homes but they're just far enough away from the larger town that they're less appealing to renters.  Why not rent a similar property "in town" that's just 10 years older but otherwise pretty similar?  What you end up with is a decent amount of homes that are "owner occupied" but vacant.  The owners still pay the mortgage but some of the oil/gas business is transient so they pay their mortgages and rent where their next stop is.  I don't know how this plays out over 10-15 years but right now it's a catch-22 scenario.  The homes can't rent for a good price and you don't want to rent the home to the people that can afford it.

Bob Crane · Answer

Central Illinois is full of communities hit hard by companies leaving the area and the state shutting down prisons and other services.

There are a lot of rental applicants out there.  But it takes up to six months to fill a vacancy because of all the people without 3x income vs rent, poor credit, or a host of other problems.

The other problem is when a person loses their job.  How long do you carry them knowing replacing them can take six months?  One landlord I know let a family ride for 4 months, the town bailed the family out (paid the back rent), the person eventually found a job, and they are current again.  That's a scary fairy tale that went well.

Tim Johnson · Answer

@Bettina F. Great story... he must have figured that national politics were bound to swing back in the other direction.

Tim Johnson · Answer

@Bob Crane Six months to fill a vacancy sounds pretty dang scary... now I'm not feeling so bad about my unit being empty for 45 days!

Thanks all for your input

Tim Johnson · Answer

Bump! Surely there's some stories out there...

STORY TIME: What happens when a small town goes downhill?

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