What is gentrification for real estate investors? Nine ways to make money from gentrification now.

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What is gentrification for real estate investors? Nine ways to make money from gentrification now.

Today Indy Anna Explains…

– What is gentrification and what are the Three Gentrification Phases?
– Five ways to spot exactly what gentrification phase you are in so you’ll know what is about to happen next.
– Nine simple ways that you make money helping folks and build your business with gentrification.

What is gentrification?
– This is defined as a group of lower income people being financially displaced as higher income residents move into the area.
– To be totally frank, this is often framed as a black and white issue, with inner city black people being displaced by higher income non-black people. That is not always the case as you’ll see.
– Examples includes “Black Harlem”, Detroit and Indianapolis

Gentrification is often connected to the “Whole Foods Effect” which is the rise of nearby property values when a Whole Foods store opens nearby.
– Detroit was a “food desert” (I’ve covered this in other classes like the “Ghetto Farming”) and in 2009 the house values were around $19,000. Then in 2013 a Whole Foods opened in Midtown Detroit and the property values were up to $80,000 by 2015.
– A Whole Foods opened in Harlem while a similar change was happening and the area was attracting higher income residents. Many of the existing residents weren’t able to afford to shop there but the NEW residents were able to. Property values and rents went up and forced many of the former Harlem residents out.
– It isn’t that a Whole Foods opening by itself creates this big change, it is just part of a big change.

Gentrification happens in three major phases, here are the exact details of how it happens and I’ll use an Indy city of Broad Ripple as an example:

Phase One: Rents go up, locals start not being able to afford it.
– Broad Ripple is a college city and over the years the rents have gone up so now a college age or young newly employed person may not be able to afford the rent.
– So if they move just a mile or two down the street closer to Indianapolis their rent can go from $2,500/month in Broad Ripple down to $1,000 – $1,500/month in Indy.
– Now as more people do this the rent in that part of Indy will go up, now rents go up and locals are not able to afford the rising rent.

Phase Two: Investors put money in the area.
– Now investors (myself included) will notice the higher rents and we will start buying houses, rentals, apartment buildings and so on. They fix them up and get them in much better shape because if you can rent a house for $1,500 instead of $500 then you’ll make it nicer.
– Then investors will also invest more in local business, retail strips, commercial real estate and so on. Things start to look better, liquor stores turn into yoga studios, fast food places are now family diners, pawn shops turn to art galleries, Dollar General stores become bike and scooter shops, you start to see more Starbucks eventually a Whole Foods store pops up, etc.
– This is also where construction begins on roads, buildings, overpasses, traffic lights and more by the city or local governments to make things more accessible, updated and fancy. The area improves and looks totally different. Before residents had a hard time affording rent now they have a hard time affording purchases as prices rise.

Phase Three: Home buyers start buying houses and officially make this new area an extension or near replica of the previous high priced area.
– Once end user buyers start purchasing homes and living there permanently to raise their families, the gentrification is complete and there is usually no going back. Prices continue to rise so now local residents are unable to afford just the taxes and other associated upkeep bills. There is a whole new type of population.
– This process may take 3-5 years or longer, and ironically once the buyers drive the price up and it stabilizes then the new “college students” of that time will just begin the gentrification process over by moving just outside of the area and we start again.
– Remember that this process almost always starts with RENTERS, and they are usually college-age or fresh graduates with no kids.

That’s how it almost always works, here’s an example of a different kind of gentrification that does NOT start with renters but instead with buyers:
– Carmel is a great example of this right now because buyers are buying houses for $200-400k, tearing them down and building $1M+ homes for themselves.
– This drives the property values and tax bills way up and many motivated sellers have to move and sell their houses that have been in their families for 50 years or longer, these are houses that were paid off decades ago.
– I’ve made classes about how to help these sellers and how to do deals with them, I’ve also covered how to work with hot areas and new home builders so please check out those videos for more on this. For now just know that this kind of purchasing also creates gentrification.

So now that you understand what gentrification is and how it happens, here are FIVE ways to spot these opportunities and determine which Gentrification Phase you are in:
– First you should always keep an eye open and see what kind of moves are happening in and around college towns. Are the students and recent graduates already willing to move a little further away? If yes are investors buying yet? Are the business changing to hipster coffee shops yet?
– I also work with local landlords and apartment complexes and see what they are saying about competing areas. Are they dropping their prices and offering free-rent and other move in giveaways? If so then they may be losing tenants.
– I market for renters and buyers and ask them about their initial area and how committed they are to it, would the be willing to drive/walk/bike a little further to school/work for a better price? How much further? This will tell you what Phase you are likely in and about to enter.
– Whenever my financial planners or tax advisers ask me to do that free class their clients titled: “All of a sudden my property taxes are way too much and I can’t afford them, what do I do?” When this happens I know something is cooking.
– Also just keep an eye out for the three types of construction: residential, commercial and government – the more you see the more likely you are moving through the Gentrification Phases.

So you know what gentrification is, how to spot it now and identify which phase you are in here are my favorite three ways to build your business by helping these folks on all sides.

If you are in Phase One:
1.) You can do a Master Lease. I did a ML with a 10 unit and paid $400-600 for each unit and then rented each one out for $1,100 – $1,500.
2.) Work with investors, tell them about your research and use them as cash buyers and you provide the tenants and split the profits.
3.) You can start wholesaling deals here too, I’ve even done this right off the MLS because many investors will pay $10,000 or more to have me keep working with them afterwards.

If you are in Phase Two:
1.) Now you should be wholesaling to investors even more but also working with them to acquire more deals because the big bump from Phase three is coming.
2.) This is a good time to start writing options on properties and doing lease options of your own that allow you to sub-lease. You want the option because of the price increase coming soon from real buyers.
3.) Talk to local businesses that are in the suburbs – hipster coffee shop types – and find out why they aren’t opening there. Maybe they missed it or don’t know about the opportunity or maybe they have criteria that needs to be met. Build these relationships with the businesses and commercial brokers because I got as much as $25,000 as a finder’s fee.

If you are in Phase Three:
1.) Above all do the L/A Model, the market is new and this is time to go nuts and build your 10-30k on the side.
2.) Also be looking for the NEXT move, keep an eye for the gentrification exit and you can do this helping renters get into less expensive areas and get paid by management, landlords or others to do this.
3.) The BIG secret: take the leftover buyers from the L/A Model and see how far away they are happy with going. Yes you are basically doing a little gentrification yourself. This is how you can flip deals right off Zillow for over 20k, 30k, 50k and more. Check out my class for more on that.

Okay let’s summarize and recap:
– First we went over exactly what gentrification is and the three Gentrification Phases.
– Then we went over FIVE ways to spot gentrification and what phase you are in.
– Plus I even showed you NINE different ways of making money and building your real estate business with gentrification.

I really hope that helps guys, if you have any questions please email me at Love (at) BigReia.com.

Also make sure you spend a bunch of time here at BigReia.com.  We are on a mission to provide the world’s clearest instructions on how anybody on the planet can create social mobility with their real estate business: BigReia.com.

Thanks so much!  = )

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Thanks so much!  = )

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~ Indy Anna
Love (at) BigReia.com
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100 FREE ways to find motivated sellers.

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