Author Topic: Speculation and Gentrification  (Read 2432 times)

zephyr911

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Speculation and Gentrification
« on: January 27, 2016, 02:41:11 PM »
So, I'm not about to buy anything based on hunches about the future, but I am considering using local trends as a tiebreaker where cash flow is otherwise equal.

Exhibit A: http://www.campus805.com/news/

I've been watching this area for a long time because I thought it had potential. In fact, my failure to complete a speculative purchase there - a dual-zoned house that was later fixed up and folded into a large commercial operation, probably at great profit - was a primary catalyst to the thoughts and ensuing life changes that led me to finding MMM, jacking my SR from a sorry-ass 10-15% to 70+, and buying some rentals that actually made money. Now I'm looking back there, and I still see signs of impending renewal and transformation. And the best news? Shit's still affordable.

I don't have enough long-term data to summarize price trends. However, inventory is low, listings move fast lately, and rents look to be rising. I just missed a $35K sale half a block from this development, which is now listed for $795/mo (well above current comps). It looks high, but it's cheap for the new clientele coming and going. If they start moving there, that's the low side of the new normal.

To me, all signs point to a groundswell of appreciation in both rents and values. But I have no basis for comparison, and I'm curious if anyone else has experience with evaluating and forecasting such localized changes.
Semi-FIREd December 2017, part-time entrepreneur, lover of puppies and saltwater.

Ricky

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Re: Speculation and Gentrification
« Reply #1 on: January 27, 2016, 06:13:47 PM »
I think your guess is as good as any - based on your own research.

If the property you're looking at buying will cash flow, whats the holdup? Appreciation is always icing on the cake - no matter how tempting it looks. I wouldn't speculating (meaning negative cash flow initially) on any more than say 10% of my portfolio. And even then, I would have to be "sure" of the upside. Everyone's different of course, but I'd say this would be a safe assumption for most.

zephyr911

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Re: Speculation and Gentrification
« Reply #2 on: January 28, 2016, 09:22:23 AM »
Of course! I couldn't agree more that appreciation is just icing, and if the cake weren't already good, I'd be looking elsewhere.

I'm just curious if there's any methodology out there for this kind of analysis.
Semi-FIREd December 2017, part-time entrepreneur, lover of puppies and saltwater.

CashFlowDiaries

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Re: Speculation and Gentrification
« Reply #3 on: January 29, 2016, 09:57:47 AM »
Definitely a long term play, I dont think that shopping center is going to bring in masses of houses/renters in short amount of time but it would have a positive impact down the road.

If you can find a good cash flowing property in the area, shoot for those numbers.  Not appreciation. 
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Psychstache

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Re: Speculation and Gentrification
« Reply #4 on: January 29, 2016, 10:02:14 AM »
I remember hearing about the"Starbucks effect", where real estate investors basically piggy backed on SB's immense neighborhood research by buyng in areas near neighborhoods they were adding stores.

Can't recall where I heard it and no idea how useful it truly is.

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MaikoTsumi

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Re: Speculation and Gentrification
« Reply #5 on: January 29, 2016, 01:29:10 PM »
Definitely a long term play, I dont think that shopping center is going to bring in masses of houses/renters in short amount of time but it would have a positive impact down the road.

If you can find a good cash flowing property in the area, shoot for those numbers.  Not appreciation.

This development is not a shopping center, but an event/destination center with breweries, beer gardens, restaurants, and other entertainment.  Something this particular area has never had as it's right in the middle of one of the poorer part's of town.

NoNonsenseLandlord

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Re: Speculation and Gentrification
« Reply #6 on: January 30, 2016, 06:15:02 AM »
Real investors buy on cash flow today, or what they can re-position a property and get more cash flow.  They do not speculate on appreciation.

calimom

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Re: Speculation and Gentrification
« Reply #7 on: January 30, 2016, 10:54:48 AM »
I remember hearing about the"Starbucks effect", where real estate investors basically piggy backed on SB's immense neighborhood research by buyng in areas near neighborhoods they were adding stores.

Can't recall where I heard it and no idea how useful it truly is.

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I heard an NPR interview (Marketplace) where the guy who created Zillow discussed that, and he might be the one taking credit for it.  While interesting, I think some neighborhoods gentrifying in a more hipster fashion might find it a negative factor - i.e. the residents would be drawn more to more artisinal coffee house options for example than suburban Starbucks.

zephyr911

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Re: Speculation and Gentrification
« Reply #8 on: February 01, 2016, 07:03:25 AM »
Real investors buy on cash flow today, or what they can re-position a property and get more cash flow.  They do not speculate on appreciation.
Real investors also avoid dogmatism, and read OPs carefully before snarking:
So, I'm not about to buy anything based on hunches about the future, but I am considering using local trends as a tiebreaker where cash flow is otherwise equal.

Definitely a long term play, I dont think that shopping center is going to bring in masses of houses/renters in short amount of time but it would have a positive impact down the road.

If you can find a good cash flowing property in the area, shoot for those numbers.  Not appreciation. 
I've found several. The cap rates are competitive without any appreciation. Actually, if I can get the deal I'm looking for on property management and maintenance, the cap rates will be better than any of my other options, leaving the question moot.
Semi-FIREd December 2017, part-time entrepreneur, lover of puppies and saltwater.

BlueHouse

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norabird

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Re: Speculation and Gentrification
« Reply #10 on: February 03, 2016, 09:00:53 AM »
Whole Foods and Trader Joes have a marked impact on home value also.

zephyr911

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Re: Speculation and Gentrification
« Reply #11 on: February 03, 2016, 11:22:27 AM »
Interestingly enough, our city just got its first Whole Foods, about 1.5 miles away. There's not much residential stuff that's closer.
Semi-FIREd December 2017, part-time entrepreneur, lover of puppies and saltwater.