The 15% Employer Rule: Never Buy Where One Factory Owns the Town

A commercial broker brought us a 64-unit apartment complex in the Midwest boasting an 8.2% cap rate. On paper, it was throwing off massive monthly cash flow. Local rent growth was steady and the purchase price was just $85,000 per unit.

It looked tempting. Then we audited tenant employment files.

Thirty-four percent of the residents worked at a single auto-parts manufacturing plant four miles down the road. Another 14% worked for local vendors directly tied to that plant.

Nearly half the property's gross income depended on the survival of one factory floor.

Six months later, that company announced corporate restructuring, shifting two production lines to Mexico and laying off 450 workers. The apartment property's occupancy dropped from 94% to 71% in ninety days. The sponsor defaulted on their loan.

Our Hard Employment Rule

Before putting earnest money down on any property, review the county's Comprehensive Annual Financial Report (CAFR):

• Cap Any Single Employer at 15%: No single corporate employer should employ more than 15% of the submarket's workforce.
• Seek Diverse Economic Anchors: Look for markets anchored by healthcare systems, regional universities, state government hubs, and logistics corridors.
• High Cap Rates Often Equal High Vulnerability: A high cap rate in a single-industry town is not a discount—it is market compensation for lethal layoff risk.

Never buy real estate where one board room decision hundreds of miles away can empty your buildings.