The G word is a hot topic in Houston, especially with respect to the Third Ward, the East End, and the Near Northside. The Heights has already been developed about as much as it can be, according to some urban planners and pundits.
Gentrification represents a massive opportunity for savvy real estate investors to profit from, if they can spot it in its early stages. It’s a little like buying a hot stock: you want in before everyone else does. If you get in at the right time, you profit handsomely.
The different stages of G
According to Walt at Swamplot.com, there are four stages of gentrification. Like most things, it starts slow and comes from authentic places. By the end, the corporations have shown up to turn the neighborhood into one big yuppie carnival.
The recognition stage
According to Walt:
“First are usually the lower income artistic types who give the area a ‘vibe.’”
As a real estate investor, how do you spot a “vibe”? Vibes aren’t your business, but if you can spot them then there might be a chance to make money. What does a “vibe” even look like? It looks like broke, starving artists moving to places typically occupied by minorities because rents are cheap.
A good place to start is in traditionally black neighborhoods. Walk around one of them and see if you can spot any white kids who are trying too hard. That’s your first clue that property values are about to skyrocket. It’s time to buy.
Then the money shows up
One thing engineers’ girlfriends won’t tell them is artists are super fun people to be around, no matter how much money they make. After the starving artists show up, their more successful brethren follow. Instead of renting the cheapest rooms they can find these people buy reasonably priced houses and fix them up. This drives prices way, way up. As a real estate investor, it’s your job to get in before the working artists do.
The real money shows up
If you haven’t bought something in the area by the time these folks show up, you’ve missed your chance. The “real money” has enough to scrape the lots and build completely new houses on them. That’s awesome if you happen to own one of the lots, and the opportunity to sell it at a ridiculous premium presents itself because all the cool kids want to live there. Not so awesome if you sat on your hands for too long.
Finally, the developers
The jig is up when the developers arrive. Once the starving artists, the successful artists, and the posers get their share, there’s precious little value left to be extracted by normal, everyday real estate investors. It takes a hot-shot land developer with a lot of capital to do anything with a community in the very last stages of gentrification.
Go buy something
Now that you know what to watch out for, it’s time to go buy something. It’s hard to go wrong buying something cheap in a neighborhood artists like. Going forward, it could pay off better than a lotto ticket. In the meantime, you get to rent your property to some pretty cool people – just make sure they can cover the rent before you let them move in.