Investing in a city with poor fundamentals

[Christian Allen]

As I begin to look for a second buy and hold rental property in Providence, RI , I have begun to look more closely into the fundamentals of the city for growth and future rental increases.  The city is known for having high taxes and the state has struggled with creating/keeping jobs in RI.  Recently a few companies have announced they will setup "tech centers" in Providence which will create jobs but that is after being given a major tax incentive.  There aren't many clear benefits which would keep these companies in Providence after the tax incentives dry up.  

My question would be, should I continue to buy in an area which doesn't have a strong outlook for the future but currently has good returns?  I have a great knowledge of the city and neighborhoods which is valuable for determining deals as well as I can use the owner occupied loans to take advantage of lower down payments.  My fear would be a decline in housing demand and therefore lower rental prices.  

[Fan Bi]

@Anthony Thompson @Christian Allen really interesting topic guys. I'm a new real estate investor based in Boston (have done two deals in Providence in the last six months). From a cash-on-cash or cap rate perspective, Providence seems like a winner. I've done analysis on close to 100 deals at this point between Boston, Providence and Charlotte NC (wife's hometown) and Sydney Australia (my hometown) and Providence is a clear, clear winner on cash flow. 

Now Charlotte, Boston and Sydney have been crushing it the last five to 10 years from an appreciation standpoint and are at a point where it's very hard to cash flow. My default philosophy is buy-and-hold with cash flow properties but it's hard to stomach the asset values in these other markets are most likely going to run past Providence in the next 10 years.