Gentrification might be a controversial and politically wrought term, but for real estate investors it spells an opportunity of a life time. Though we remain steadfast in our philosophy that in real estate you make money when you buy, it’s hard not be excited by the home appreciation rate in some of the DC neighborhoods. As one of the top hard money lenders serving Washington DC, we’ve seen our clients earn significant profits turning dilapidated properties into swanky homes for the upwardly mobile. Are you considering DC as your next investment project? Here are some data, resources and advice to get you started.
First of all, let’s define “gentrification.” Gentrification describes the arrival of wealthier people in an existing urban area. This arrival changes the area’s character and culture. It also increases rents and property values. The negative effect of gentrification is the displacement of poor communities by wealthy outsiders. Gentrification remains rare nationally, but we apparently live in its epicenter. In 2015 there was only one city in the whole US that was gentrifying faster than DC: Portland, OR.
DC gentrification is fueled by an influx of young and affluent residents. In fact, the Washington Post reports that between 2009 and 2012 our area saw the largest increase in Millennials than any other area. They are largely responsible for making Petworth, Navy Yard, NoMa and Columbia Heights some of the trendiest neighborhoods in DC. We’re now seeing gentrification east of Anacostia, in the areas many hard money lenders have historically considered too risky for investment. To learn more about gentrification trends in specific DC neighborhoods, please click this interactive map.
Those aspiring to invest in one of the gentrifying neighborhoods in DC should keep several things in mind.
Do not overbid.
Yes, some areas are appreciating rapidly, but there is always a danger when you need to rely on appreciation for your profits. Each block in DC has its own price range. Make sure your after-repair value is realistic and based on the comps in the immediate area, not a mile away from your subject property. If in doubt, call us. We are hard money lenders that specialize in DC and will help you evaluate your deal’s potential.
Watch out for properties in weird locations.
To a novice investor, these types of properties might appear an irresistible bargain. Beware though. Is the property located near a noisy store, a gas station or bordering an area that is zoned commercial? We recently had a client who was thinking about buying a property in Deanwood. At a glance, the deal had a nice profit margin until we discovered that a house is located right behind a metro line. Hard money lenders are hesitant to lend on such properties and for good reasons. They are hard to evaluate and their market price is often unpredictable. We shared our reservations with the borrower who eventually walked away from it.
Plan for longer rehab and renovation.
When working with hard money lenders, you want to move fast. However, you also need to be realistic when planning your rehab. If you need to get any permits or inspections in DC, allow for extra time – DC is notoriously slow.
Whether you call it “gentrification” or “community revitalization”, Washington DC is a wonderful area to live and to invest in. It offers unparalleled opportunities for real estate investing. However, a savvy investor cannot and should not fall victim to the hype. Keep your cool, remove emotions and do a thorough analysis of each deal that comes your way.