Gentrification/Appreciation focused market

7 Replies

Gentrification:  the buying and renovation of houses and stores in deteriorated urban neighborhoods by upper- or middle-income families or individuals, thus improving property values but often displacing low-income families and small businesses.

A large percentage of the city of New Orleans LA is currently undergoing the above process. Houses, store fronts, even warehouses are being aggressively purchased, renovated then sold to a younger, higher income producing demographic. Neighborhoods that were once crime ridden and subsidized are now buzzing with beach cruisers, trendy restaurants and beautiful new properties. One by one these markets are gaining value. 

So here is the question- I know a business model/investment should not be primarily focused on appreciation but when all the factors point to a booming market, would it not be smart to attack? Your thoughts would be greatly appreciated. 

Thanks,

Stephen

@Stephen Roche buy on the fringes and make your numbers so you can cash flow well, then if it appreciates you will do well, once things are buzzing its a little late. Go a few blocks out to "those" areas that in 5 years will be good, thats what I try to do. 

@Stephen Roche It is not clear if what your investing goals are from your post.

Yes, there is a lot of Gentrification going on in New Orleans. But it is a risky play, if you guess wrong, you could be left with next to nothing.  A big problem in New Orleans is the areas that are up and coming need significant work to the properties, and alot of the time that means more costs than the repaired houses are currently worth.  Alot of these properties have been neglected for many, many years, and it would almost make more sense to bulldoze them and start over.

I am a buy and hold investor, and I buy/build based on the cash flow.  It's great if my properties appreciate, but its not something I count on.

I think you will find, by the time the Gentrification is in full swing, it is too late from an investment standpoint.  That has been the case in most of the properties that I have looked into. A great example of this is the area "New Marigny", north of St. Claude.  Houses in that area now going for well over $100/ft, even houses that need entire renovations are asking $75/ft.  For cash flow to work, those prices are way to high.

To be honest, you are almost too late. There have been more than a few conversations on BP about the lack of deals in the city lately. Anything that shows up on MLS gets snatched immediately and the wholesalers are struggling as well. Growth and gentrification are playing a part but we also have been seeing an effect from all the guru's rolling through, creating numbers of new people wanting to flip contracts. These days people who own vacant and blighted properties are getting so much "attention" that they think their properties are worth more than they actually are.

Buying on fringes can work, IF you know the city. In Orleans Parish you can cross one street and values go down drastically. Not only do values go down but you are also subject to get shot, robbed, carjacked, etc. There are some pockets around here that you couldn't give me property for free, it's just not worth the risk. In other words, there is a fine line between "fringe" and "went too far." Do your homework well.

Gentrification....do not make the mistake of equating gentrification with safe environments. When you say "Neighborhoods that were once crime ridden and subsidized are now buzzing with beach cruisers, trendy restaurants and beautiful new properties," as a gentrifier myself I feel the need to give you a little bit of insight. Even gentrified parts are still in New Orleans and our problem is bigger than blighted properties. Our problem is the fact that NOPD is working with a fraction of the police force that is needed to keep any of our streets safe. If you intend to participate you need to know this going in. NOPD often has a backlog of 911 calls that number 30+. You can quite literally be stuck waiting for them to show up, for days. The criminals know it and they make good use of it too.

 Bywater is a perfect example. Yes, values riverside of St Claude have gone so high they hardly make sense anymore. The thing is, crime follows money. People living in Bywater have major issues with robberies, burglaries, car theft and drugs. I know more than a few folks who are leaving because it sucks to pay $300k+ for a home and then spend your time trying to figure out how to keep yourself and your possessions safe from thieves, while you are watching junkies shoot up in the street. The area between St Claude and N. Claiborne is on the fringe of Bywater and has seen values go up exponentially over the past 2-3 years. The problem there is a little more extreme, the neighborhood drug boys seem to like to shoot each other quite a bit. If you go lakeside of N. Claiborne, you may have gone too far. The mass shooting of 17 people at Bunny Friend park last month is a good example of the type of neighborhood it turns into up there. 

I am not saying any of this to discourage you. I live here and buy anything I can from the river to N. Claiborne Ave. I have also started buying in St Roch (something I said I would not do 2 years ago, but the gentrification line continues to move.) I am just trying to give you some insider information so that you can formulate a realistic plan. Gentrification is not for the faint of heart BUT risk does equal reward. Your money is pretty safe because values are definitely going up, your risk is more on a personal level if you plan to spend any real time in some of these areas, no matter which part of NOLA you choose. 

Kimberly,

   Thank you for such an in depth and personal response. As  a New Orleans(Actually Metairie) native, I am familiar and agree with just how accurate you are. As far as the "fringe" areas go, I am also looking in Bucktown and the outskirts of Old Metairie. Chances are I will not find any property meeting my price point....so the north shore it is. Again...thanks for reaching out

@Kimberly Jones Nailed it. I could not agree with her more.

Having a house under construction in the "upper bywater" between St. Claude and North Claiborne, its a fine line. Also a quick look at the local MLS shows how crazy people are with what they want.