Investing area's going through gentrification

The National Post posted an interesting article about the different homicide rates for different neighborhoods in Toronto. In the article they mention neighborhoods with similar demographics have very different homicide rates.

Why?

Urban observer Jane Jacobs gave a compelling case that neighborhoods are structurally created in such a way that promotes crime.

I saw this first hand in Rochester seeing how crime festers through the way roads, services, businesses, and community infrastructure is designed. This results in significant costs to policing and social programs (both of which are in the top 3 in Toronto spending).

Many investors who dream of finding that one property cheap in a neighborhood that is transitioning should understand two things:

1. Because there is some development (i.e some infrastructure spending, new condo's etc) in a neighborhood doesn't mean it will transition
2. Transitioning will slow significantly because of our current recession.
   

Still think you are on to something?

To avoid being a hero in a market by investing too early or investing in the wrong neighborhood, understand what these barriers are (look at my previous post on the ghetto loop to understand what to avoid).

Think of how many times people have tried to revitalize the downtown East side of Vancouver. Imagine investing there in the past thinking that the millions of dollars going to support the area would change things.

To spot an area that is prime for gentrification and re-development is actually occurring key in on neighborhoods that are pedestrian friendly (what makes an pedestrian friendly will be discussed later).

Take a look at this video from BNN for the positive impacts of making neighborhoods more pedestrian friendly (go to 6:34 mark).

Jan Gehl gave highlights of Melbourne and it's recent revitalization:

• Less purposeful use of the city to more enjoyment and livability
  
• 50% more pedestrians (2x as many at night)
  
• Cafe's and street patios
• All economic factors are up (more turnover, more jobs, higher real estate values, lower taxes)

In the BNN report they gave evidence of the Bloor-Annex (click here to see the study they got their evidence from). Pedestrians outspend drivers (i.e. those going to big box stores) therefore there is more demand from business for the space...creating more traffic in the area and therefore reducing crime and increasing property values.

Every city has people as passionate as Jan Gehl..find them, they're even in Edmonton.

(Thank you David Hamilton for being a wealth of information, I'm glad I can we can be sounding boards for Edmonton's future )

Until next time

Lost your Job? Frustrated? Let's Blow up some houses!

It has come to this in real estate in the US...where the economic fundamentals in some neighborhoods are at a point where it makes more sense to destroy a subdivision than it was to actually find a buyer.

I went to Rochester and I was amazed to see that jobs were leaving faster than people were. Imagine a place that nothing real big has happened before the 50's. The place is dead...33% of all buildings in some neighborhoods are abandoned (I get emails from folks selling real estate in these neighborhoods, I blogged about my research here).

According to Wikipedia there are 123,833 homeless people in the States.

Something to think about

Cheers

Rochester Real Estate: Stagnating towns or neighborhoods

During my hunt to find profitable real estate investments I went to Rochester. I heard it was a goldmine for cash flow and had potential for future growth because real estate was so cheap. I went in with an open mind, saw property and then dug in the fundamentals for the city and particular neighborhoods. Alas, after doing the research, I don't feel Rochester is a good place to invest, especially for Canadians (significant currency risks will erode any cashflow, and you will see continued deprecation with no real exit strategy).

This trip lead me to write this blog about why some towns and some neighborhoods are stuck in perpetual loops of decay (i'll call the ghetto loop). Rochester has some really rough neighborhoods where an out of town investor can find properties under $20,000...basically these properties are worth less than the materials used to build them...simply because they are in poor locations.

The ghetto loop occurs when residents of a neighborhood cannot help themselves to prosper and have to move away. Essentially, every time a population makes any socio-economic gains, people move en mass. When this occurs the new residents that replace them are in the same socio-economic situation of the people that just left...essentially creating a black hole for millions of public dollars in policing and social assistance. Being a real estate investor, I see two things I CAN'T STAND:

1) Wasted Investment dollars (i.e. public money) that could go to making my real estate grow

and

2) wasted potential for a good investment if i want to make one.


For my opinion, part of the reason why the potential for real estate gains is wasted is because there is nothing there to hold the population in place to make a change.

I wish I can find the stats to support this, I haven't seen lenders publish the ratio of successful/unsuccessful applications for a particular neighborhood in Rochester and why they were unsuccessful. As a result, I can only come from is personal experiences of of bankers and residents in certain neighborhoods that are transitioning.


Now Imagine if you were a new immigrant, who loved your neighborhood, saw it as being unique and irreplaceable...how could you possibly build roots if my partner couldn't even get financing?


Can you imagine the impact this would have on the neighborhood? It is essentially impossible for new residents to grow into the middle class and stay.


This has the following impacts:

1) Huge turnover in population but low vacancy
2) Vacant properties or occupied properties with many code violations (showing that residents have little attachment to neighborhoods)
3) Houses for sale with extremely high days on market
4) Accidental landlords (people who couldn't sell their properties and are forced to rent them out with little expertise)
5) Lenders blacklisting the entire town or neighborhood
6) No changes in the numbers of dwellings
7) Most of the property has similar architecture (showing new homes are being built)
8) No changes in the number of dwellings built

If you see these fundamentals you might want to reconsider it as an area in transition.

If the US doesn't change things, these areas will get worse and worse because as time goes by any potential for a sense of community will be destroyed as more new residents move in they are unlikely to invest in the neighborhood and are unlikely to have little in common with their neighbors (possibly being bitter for living there in the first place).


Keys of seeking opportunities

1) Programs and grants encouraging people to set up roots in the neighborhoods. These grants should be adequately funded and disbursed regularly.
2) Populations slowly decreasing but vacancy remains the same (people are choosing to live there, rather than being forced to live there because of their situation causing the household size to decrease)
3) Average incomes increasing
4) Existing infrastructure of businesses staying and new businesses moving in
5) Increasing home ownership
6) Few code violations
7) Low crime (community policing themselves)



You can take a look at my research report here on Rochester to find the neighborhoods that I found that have the potential to transition.