I was wondering any investors on here have a strategy of investing in gentrifying or up and coming areas that cash flow. It seems this could be the best of both worlds as both rents and property values tend to rise in gentrifying areas. I know there are a lot of people that just focus on areas that cash flow and don't expect any appreciation...and then there are those that don't care too much about cash flow but are betting on appreciation in the future.

I would think this strategy would apply most to those that invest in different areas, but it could apply to those that invest in their local area.

The reason I am thinking about this is I've been doing a lot of research on the Pittsburgh area and it seems like there are many neighborhoods that have been recently gentrified and ones that seem to be ready for gentrification or up and coming. I'll be visiting soon and looking forward to it.

One potential problem I see is that there isn't much inventory on the market. It looks like these areas didn't experience many foreclosures ,and it sounds like the people that own in these areas are older/retired and dont plan to move. In this case it seems that doing direct mail marketing and trying to find sellers off the MLS might be more effective?

Any thoughts on this issue or in the Pittsburgh area in general?

Also anybody have any other suggestions of areas that currently cash flow, but are gentrifying?

I would suggest getting in contact with the local Pittsburgh government to find out what some of their plans are going forward. More and more cities are identifying zones for redevelopment and they work with not for profits, investors, and hedge funds to get that process started. Be prepared for large rehab expenses as most of these properties will have been sitting for a while, but you can get the best of both world in this type of investing. Also consider investing near colleges that are seeing a large increase in enrollment and applications.

Thanks Kevin, that's a great suggestion . Investing near the colleges is a smart move too as the demand will always be there and there seem to be a ton of colleges/universities in the area.

Based on what I witnessed in Austin, I think a good strategy would be to scoop up properties in blighted areas close to down town. It's hard to predict which area the next gentrification is going to occur in. Even if you look at local gov't programs, there is no garauntee they will work. For example, construction of a new neighborhood park could just be another place for drug dealers to hang out at in the next few years. If there is a comprehensive development in place and private investors in tow, than you might know a little more - but the property values will have already moved up some, too...

also take a look at areas where a single house is being torn down and in its place they are planting a few trees or a small garden. Several cities have done studies recently to the power of turning a single blighted house into a small park and the positive effect it has on the local area. I would have thought it would have been a great increase in crime, but it actually has the opposite effect and can be a good indicator towards a more vibrant future for the immediate location.

This could get interesting. I agree with Kevin that the best place to start is at the city.....start attending the planning and zoning meetings and hearings. The planners, if they are doing their job, should be addressing blighted areas, identifying them and seeking solutions.

You'll find that this area of RE takes in all kinds of social aspects along with physical building issues. Population growth, socio-economic trends, education, traffic control, fire and police protection, financial leveraging between public and private sectors as well as health and welfare issues. It's not easy to build a city and understanding the basic overview will certainly be important in selecting properties with future potential.

I think there are a number of major cities that could fit this description, and I agree there are a number of factors like the ones @Bill Gulley touched on that go into the direction a city is taking. What I would say though is that you have to be OK with the current state of the city in order to invest there. Meaning- if you are banking on the turnaround of an entire metropolis to bank your appreciation, you may be waiting a very long time. The rental yield you receive in areas like this should be compensation enough, and any appreciation you get should be seen as gravy.

Totally agree @Jake Kucheck , it's usually pretty obvious where the good pockets of any city are and investors better look to the reality of what there is at the present.

If you "get in" with the planners you can get an idea of what's up. Spotting a blighted area or building is also pretty obvious.

It takes time and a bit of a reputation I'd say to build trust and confidence with these city types, they also see much of their information as confidential as putting everything out there could spike prices or cost the city more if they were in the process of acquiring properties. But what they might consider as common knowledge, they could point you toward that old wharehouse that could turn into a condo in the inner-city.

Thank you everyone for your input. I think all these ideas are good ones. From what i've been reading it seems like there are different neighborhoods that are changing and some have already changed significantly.

I think the idea of investing near the downtown areas is smart. Areas that are close seem to be a pretty good value. I have been interested in Austin for a while too, but it seems like it would be hard to find properties that cash flow, at least in the downtown areas. I could be wrong though. Austin has been talked about for a while now ,and sounds like a great place to live so this is not surprising.

I'm going to keep an eye out for homes that were torn down and turned into parks. I was reading about homes being torn down and redeveloped by the redevelopment agency. I have to read more into exactly how that works.

I think attending the zoning/planning meetings is a good idea, I'll just be visiting shortly this time but I have been thinking of possibly moving there...but I'll have to see how I like the city, the opportunities there ,etc. Where I live currently I don't feel is too great of a place for real estate..I know that real estate can done anywhere , but it's definitely not a place for cash flow, and you have to be well capitalized in order to do fix+flips because of the high purchase prices. Also in general I feel that the city has gone pretty far downhill and is getting quite unlivable while remaining expensive ...which is a bad combination!

I definitely agree that it's not a good idea to invest somewhere that is currently really depressed or crime ridden, hoping for a turnaround. There seem to be some properties that would cash flow. Of course it would be nice to have both, but that can never be guaranteed. Rents appear to be rising in the city from what I have been reading, as are property values. Apparently they were one of the areas that didn't increase rapidly, and they supposedly had more conservative lending criteria so there were not many foreclosures. In a way I view this as not really a good thing because I kind of like the idea of buying in places that are historically low. I do feel though that with the development going on in the city, the diversity of the economy combined with low unemployment and other factors that there will be higher than normal appreciation rates.

I don't know how you would track it, but it seems gentrification usually starts when younger (often educated) white people (we are talking gentrification here...) start getting the cahonies to move into the edges of the more blighted areas of town because of the logistical advantages (proximity to DT, etc.).

Also, don't discount what the up and coming hispanic society is doing. In Austin, for example, there was a lot of hype in the Austin Hispanic Chamber of Commerce around the East Ceasar Chaves area (I dated a hispanic girl who took me around to those events long before I was really thinking about RE investing). That was around 10 years ago. Today, property on that street on the east side of IH 35 is probably 10 times higher than it was 10 years ago and it is more accredited to hispanic input than white.

Brian, that's interesting insight into the gentrification of the Austin market. It would of been nice to have had the money resources and invested in those areas back then. Also I am sure with the real estate values going up so much , the rents also went up considerably too. The news doesn't usually report the real appreciation in values that have happened in some areas, they reports prices for an entire city or state. Now the national news stories are saying prices are going up , but I can see there are several places were prices on the low end (where investors would be buying) have gone up significantly the past 2-3 yrs. Using Phoenix and Las Vegas as an example, people that bought cheap REO properties within the past few years now have homes that are valued much higher. This is of course because of simple supply demand but the media doesn't seem to tell that story.

One kind of interesting thing about pittsburgh is that the hispanic population is really low. I view this as kind of a negative. I think it's like 2.5% or something. Where I currently live it is like 50%, and my actual neighborhood is more like 70%, so being
nonhispanic I am the minority.

I guess the key is to try to get in before everyone else jumps on the bandwagon and prices rise too much...which is of course easier said than done.