Good income/expense, depressed region

Hello,

I’m posing a general question here regarding rental property invesment strategy. What are “your” thoughts on investing in areas that have good to great financial parameters but are economically and socially depressed? For this discussion, let’s rule out high crime, inner-city ghetto type areas. Think more rural.

For instance, rural Maine produces $2K/month for every $100K in price all day long. In metro Boston you are lucky to see half of that. One problem, I guess, is that there is limited exit strategies in depressed areas, so you had better be prepared to hold. There may also be disadvantages regarding tenent problems. But cash flow, at least on paper, is good. It’s something I don’t have a good handle on, mostly due to lack of experience; I would like to read what you all have to say about it.

Thanks for reading. Thanks more for sharing your thoughts! :beer

If buying good cash flow is supposed to basically insulate one in a way that speculative investments do not, what about the fact that future cash flow is also somewhat speculative? How is this analyzed / considered?

:beer

I’m confused. How can an area have good financial parameters AND be economically & socially depressed? People will go where the jobs are. No jobs = no people. No people=no renters. No renters=No money. Also, what does “produces 2k for every 100k” mean? Are you saying that a 100k property produces 2k of gross income?

Know your market. Know what rent you can get in an area for a property. Don’t analyze a property based on future numbers. Analyze based what you can get for it now. That will tell you what you should pay for it now. Then any future rent increases become icing on the cake. At that point, your future speculation will just mean more money in your pocket (for the right deal)…rather than you using those future rents to justify the current selling price. Don’t fall for the owner saying “they could rent for $xxx.” Know what the current rental market will support.

Farmer,

CASH FLOW IS KING in the rental business! I’ll take that any day over long term speculation. Economically depressed? Socially depressed? Beverly hillibllies for tenants? Who cares? I’m in it for the cash flow!

Good Luck,

Mike

Thanks for the reply. To clarify, I was refering to financial parameters in regard to the rental investment market (as in good cash flow), rather than the area’s economy in general. And yeah, I was saying that a 100k property produces 2k of gross income; a 300k property produces 6k, etc. Its just a ratio I use for comparisons.

Well if you apply the 50% rule, you have $1k to use for CASH FLOW & P&I on a $100k purchase price. Keep in mind that you want to have a minimum of $100/unit/mo. positive cashflow. It’s a good idea to subtract this your cashflow fisrt (from the $1k). What’s left is the amt. available for the P&I.