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Old 03-10-2013, 12:47 PM
 
11 posts, read 8,794 times
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Question Do high income renters increase property value in a low income neighborhood?

If you rent in a low income neighborhood and then a lot of high income people start to rent in the same area, does that increase the property value of the building you're in? And that then raises the rent ultimately?

Just wondering how the income of renters affect the neighborhood's property value...when people start renting in places well below their means.
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Old 03-10-2013, 01:26 PM
 
Location: Bay Area
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Alex, what is gentrification for $200?
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Old 03-10-2013, 01:31 PM
 
Location: Portland, Oregon
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Income doesn't really effect rents directly. Though I guess you can say people with higher incomes than the ones in the neighborhood move in, commercial that caters to them follows, then rents increase to meet the new demand for housing. But really that is a very basic, generic way to look at housing.
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Old 03-10-2013, 01:42 PM
 
11 posts, read 8,794 times
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Quote:
Originally Posted by rparz View Post
Alex, what is gentrification for $200?
Good one. Guess I should've been more specific...I'm talking if you only considered income alone (and not necessarily all the "good stuff" that supposedly comes with gentrification), and the fact that these people are renters.

I'm just someone who's trying to learn some specific reasons why a property can go up in value or down. Trying to acquire my first home. The scenario I have is if I bought a property in a low income area, and then all of a sudden middle-class people start renting. Will my house value go up as a result purely because of their income, and not the effects their income might have on the community?

I don't know, maybe it's a dumb question The thought just came from looking at these income charts on city-data maps.

But if I'm really just asking something pointless, feel free to set me straight! Trying to learn so that I can make a good decision.
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Old 03-10-2013, 01:47 PM
 
Location: SW Missouri
14,850 posts, read 17,303,118 times
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Quote:
Originally Posted by ToBeSome1 View Post
If you rent in a low income neighborhood and then a lot of high income people start to rent in the same area, does that increase the property value of the building you're in? And that then raises the rent ultimately?

Just wondering how the income of renters affect the neighborhood's property value...when people start renting in places well below their means.
Property values are based upon location, construction and materials used, upgrades and the prices of comparable properties.

If you are selling the property as a commercial business, then the selling price is based upon an income formula that includes the rent, occupancy, etc., but for a plain old, residential property, the amount of money that it rents for does not affect the property's value one way or the other.

20yrsinBranson
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Old 03-10-2013, 02:38 PM
 
Location: Bay Area
1,490 posts, read 1,092,560 times
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Quote:
Originally Posted by ToBeSome1 View Post
Good one. Guess I should've been more specific...I'm talking if you only considered income alone (and not necessarily all the "good stuff" that supposedly comes with gentrification), and the fact that these people are renters.

I'm just someone who's trying to learn some specific reasons why a property can go up in value or down. Trying to acquire my first home. The scenario I have is if I bought a property in a low income area, and then all of a sudden middle-class people start renting. Will my house value go up as a result purely because of their income, and not the effects their income might have on the community?

I don't know, maybe it's a dumb question The thought just came from looking at these income charts on city-data maps.

But if I'm really just asking something pointless, feel free to set me straight! Trying to learn so that I can make a good decision.
Still not sure what the variables are that you're trying to hone in on.

People living below their means isn't something you see all that often, so you'd be hard pressed to find a trend.


You can tell if an area has most potential by the amenities that are static. Transportation services, walking to an an el, etc. Something has to be worth while. You can identify the development and the way it's pushing out. Places like Humbolt Park are an extension of Ukie Village, or Avondale is going to be the next Logan Square, Bronzeville next south loop, etc etc.
You can't just throw a dart at a map and hope that some random island of a place in the middle of nowhere is going to turn around. You could, but that's just wishing and praying.
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Old 03-10-2013, 10:41 PM
 
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High income people paying low rents do not by themselves increase property values, but the dynamics of gentrification are complex and you cannot separate out one variable like this. High-income people paying low rents have money left over to spend on $6 coffee, $2000 bicycles, fine dining, cute clothing boutiques, and so forth. These businesses, and the changing reputation of the area, bring in high income people who *buy* buildings and live in them. The renters' friends may also come visit them and look into buying a building. So, yes, gentrification can start with a change in the renter population, and usually does (the pioneer buyers being investors who try to take advantage of what they see as rising rents). I thought that was kind of obvious but I guess not.
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Old 03-11-2013, 08:19 PM
 
Location: North Jackson
1,267 posts, read 1,269,688 times
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As others have stated, it's a complex issue with many moving parts. But if you want to have a "thought experiment" I'll try to play along...

What drives rents up or down is DEMAND for rental properties. Period. It's not Starbucks or anything else. If landlords have near-zero vacancy/100% occupancy, and people are still calling and asking about openings, then that is when landlords raise rents.

So imagine you and a bunch of your high-earning buddies gradually start renting in Englewood. Your presence by itself should not cause rents to rise, because there is no increased demand for rentals in Englewood. If your landlord tried to raise the rents to you and your other apartment dwellers, he would soon find his occupancy rates falling.

That being said, if I was a landlord in Englewood and you were trying to move into one of my apartments, I would probably try to charge a higher rent just for YOU, because I know YOU have money to burn, so to speak. Based on your credit application, job history, etc.
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Old 03-11-2013, 08:26 PM
 
Location: Hyde Park
288 posts, read 403,351 times
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Quote:
Originally Posted by JacksonPanther View Post
What drives rents up or down is DEMAND for rental properties. Period. It's not Starbucks or anything else. If landlords have near-zero vacancy/100% occupancy, and people are still calling and asking about openings, then that is when landlords raise rents.
This
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Old 03-11-2013, 08:45 PM
 
Location: Hyde Park
288 posts, read 403,351 times
Reputation: 172
The perception of stable rent can lead to increased property values. I am a mortgage banker in Chicago. Back when we could do 5% down payment on investment property, many people purchased 2-4 unit properties because they thought Section 8 renters with their government assistance would help the property turn a profit. There were quite a few developers who rehabbed properties and promised Section 8 renters to the buyers. $250000 3-flat with 5% down costs about $3000 per month, but three Section 8 renters at $1250 means at least $500 to the owner per month. Do that three times and now there's close to $2000 total spinning off those properties. That all collapsed when the renters skipped a few payments every year and the owners didn't have reserves to bridge the gap.

Now that it's a foreclosure and short sale market, those with cash $$ are purchasing bank ownerd properties for the same reason. Foreclosed 3-unit is $50,000. Three Section 8 renters pay $3750. Do that three times and you can buy a $50,000 property every year even with a deadbeat tenant here and there.
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