Baltimore's declining population and cash flow.

[Asish Balu]

I'm currently searching for my first investment property in Baltimore City. Since the area is declining in population, won't this eventually cause real estate prices to fall?

If I invest for cash flow in class B neighboorhoods, am I somewhat protected against the declining real estate market? Just wondering whether I should stick to this area or move & invest somewhere else.

[Russell Brazil]

Baltimore has many challenges.  Shrinking population is of course a big one. Id contend, and Im curious to know what @Ned Carey thinks of this, that the biggest challenge is the municipal risk involved in Baltimore, with a local government that is largely anti-landlord, and a city constantly on the verge of bankruptcy.  The tax rate in Baltimore should be criminal.

Baltimore is generally on the higher risk side of real estate investing, but with higher risk investments in real estate, or dividend paying stocks, or bonds, you are given a higher yield to reward for taking on the higher risk asset.  And Baltimore is a highly varied city, with Class D and worse neighborhoods, but also some Class A neighborhoods, and the yields will dramatically vary.

BTW, people often think when I say High Risk or Low Risk, that one is Good and one is Bad...that is absolutely not the case. All investing is, or should be deploying capital to meet your goals based on your risk tolerance. Higher risk obviously has some of the challenges alluded to earlier.

I always tell people that the #1 way to mitigate risk is with market knowledge.  Peter Lynch in his classic investing book One Up On Wall Street essentially says the same thing, he says invest in what you know.  This is one of the primary reasons I think long distance investing is a bad idea.  The risk involved in investing in a market you dont know, and the distance from not being able to run over to a property and get an emergency under control, create more risk than I think the average mom and pop landlord can handle. (Please BP dont ban me for criticizing a strategy a well known BP persona advocates)

So if you are from the Baltimore area, know the area, invest there, and use your common sense to help mitigate the risk.

Although always keep in mind, while Market Knowledge is our greatest mitigator of risk....sometimes it blinds us to being able to properly analyze risk across multiple asset types, multiple markets, because you inherently in your mind minimize the risk inherent in an asset or market that you do understand, while over blowing the risk in ones you are not as familiar with.  I think I said it on the podcast, that the biggest mistake new investors make is the inability to properly assess and analyze risk.