Advice on Hold and Buy Gentrification Property

[Keeya WangJones]

What are people thoughts about buy and hold during controversial neighborhoods regarding gentrification? In San Diego, I see and research some areas that agents are marketing as up and coming, gentrification, get it now, etc. 

As I learned on BP, I don't want to buy a property hoping that the value will increase drastically because the neighborhood will get better over time. I learn to crunch the numbers for today and next 5 years, 10 years, 15, etc. Folloe the 2% rule which I love! 

Some neighborhoods in San Diego did get popular and are still growing in popularity such as North Park. 

But there are spots that are supposedly following the same track record. 

Has anyone bought a property that might be getting gentrified? 

Does anyone have any morality feelings about gentrification that interfere with an ideal purchase? Kick out the poor ... 

What are the tale tell signs that it could take decades before a neighborhood can catch up to B status if it is originally C status? 

Since, I want to live in a Quadplex or Triplex, safety and well being first is a concern. So the market is tough for A/B area. 

So I started looking at B/C areas for better opportunity. Like the edge of a B area. 

Advice and storytelling is definitely wanted. :) 

Cheers,

Keeya

[Amit M.]

There's a lot to be said about this, given that I invest in San Francisco, gentrification capital of America right now ;)  but I'll try to be succinct:

1- the 2% or even 1% "rule" A- doesn't work in costal CA and B- is a bad way to invest IMO. Just search "appreciation vs cash flow" on BP and you will get an earful. But bottom line, 1-2% props hardly ever appreciate. You can get cashflow from more expensive props (like what you're looking at) with enough of a down payment. So you need more money at the get go to make them work. plus these properties are in locations that are up and coming/desireable, are expensive to build new housing in/don't have open space, etc. that's why they gentrify, because they are near more expensive areas. If you pick right, you can double the value of the properties in a few years. Not only the neighborhood gets better, but you get better quality tenants and more rent as well. The difference can be significant- it certainly has been in San Francisco.

2- as for gentrification itself, the irony is not lost on me that a well educated African American woman should not improve a neighborhood:)  you can think of yourself as a positive example for an impoverished community. Tenants are not entitled to lifelong leases (although in SF with strict rent control, they certainly try). If people of lesser means are in a neighborhood that is getting too expensive for them, then they will need to relocate to another area. Just like I'd love a cheap place in Monaco, but I'm not entitled to have it for life from some governing body. 

*HOWEVER*, I believe that as an individual investor, you should be sensitive and humane in how you deal with your tenants. In my case I gave my tenants 6 months to relocate, whereby my legal obligation to them was only 2 months. I worked with them, and their financial support agencies, so they were able to line up alternative housing. They left without me having to evict them or excessive drama, because they realized I was treating them fairly, even though their situation was a tough one. 

Hope that helps you.