Gentrification has become one of the latest buzzwords to inundate the American business world. Along with hipsters and Starbucks, the concept of gentrification is spreading like wildfire. As the population of cities increase, baby boomers head south, and real estate is the new [old] way to show status, urban areas that have fallen on hard times have become likely places to invest and renew. While any investment holds some level of risk, real estate being no different, investing in a gentrified neighborhood might hold some risks that differ from any other real estate investment.
First, to define gentrification. Gentrification: the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poor residents. First used in 1964, it typifies wealthy investors moving into areas inhabited by lower income residents, prompting an urban renewal [influx of businesses whose services and prices cater to higher income residents] that prices the current residents out of the neighborhood.
With any investment, there are pros and cons. Accordingly, the must be thoroughly analyzed that you may better assess the risk, and maximize the reward. The inability for families and businesses to be able to afford things like services and taxes as the neighborhood is revitalized is the most unsettling aspect of the process. As an investment you may not wish to involve yourself in something that may inadvertently displace people and businesses that have been in the area for generations. Also, the neighborhood may not turnaround as expected. So, the equity that was potentially immediately available for the refurbished property might not be as great as initially predicted. Lastly, the human factor. Gentrification has faced great opposition in some cases. Displaced residents have garnered media coverage and tried to fight gentrification through legislation. For some investors, that’s a headache they’d rather avoid.
The pros are just as many and varied as the cons. A simple pro, for the neighborhood, is improvement. Generally, there are as increase of new businesses, decrease in crime, and influx of services offered—either by local government that is trying to improve an area or by social programs geared toward bettering things for the residents. If you get past the socio-economic ramifications, gentrification usually translates into quick equity and self-marketing. The same improvements you could do on a new piece of real estate in another area could mean a dramatically higher return in an area going through urban renewal. These areas are popular and you, as an investor, would have to exert little or no effort in selling or leasing a property. Not every gentrification effort is geared at displacing low income residents to bring about “improvement. You could be get in on the ground floor of a reawakening of a neighborhood, and make money in the process.
There are different types and levels of gentrification. Some efforts bring in artists and programs that want to better the targeted neighborhood, for those that are already there. They better or create schools, help garner private and public funds for much need improvement, and have no attention of displacing anyone. Given the pros and cons indicated, as an investor, you need to look at both, be realistic about your investment and financial goals, and make an informed decision. The best way to protect your portfolio and all of your investments, is to know all of the facts and. Carod Properties is here to help.
