The recent influx of newcomers to inner city neighborhoods is not the first, and certainly not the largest demographic trend in memory. Adapting to these changes not only keeps you financially afloat, it can also present new economic opportunities.
The Great Migration was the time between roughly 1915 and 1940 when more than a million Blacks from the South moved North in search of better jobs and opportunity. Despite the hostile social and legal atmosphere of the time, they persisted. When it came to real estate, people cobbled together down payments from meager paying jobs. As time passed, the community grew. White flight occurred in many communities which depressed real estate prices and accelerated the concentration of Blacks in urban centers.
That was then. Today, this migratory trend has reversed: many long time Black homeowners have found themselves within rapidly changing urban centers. Homes that were purchased 15-20 years ago can today be sold for 3 or 4 times what they were originally purchased for. According to the Greater Capital Area Association of REALTORS, the February median sales price for a home in Washington, DC was $519,000. According to The Washington Post, the average rent for a 1-bedroom apartment is $2,000. These are impressive numbers.
Gentrification is the oft-used term to describe the population shift from mostly or all working class minority to a more well-heeled cohort unfamiliar with the existing community. It is commonly framed as something to be fought –both tooth and nail as well as to the bitter end. The overarching idea being that “gentrification” is something that is done to a community, relegating a neighborhood’s existing residents to a permanent defensive posture in a game wherein they are mere pawns. While the destructive capacity of this type of rapid demographic change is well known, it is certainly possible for gentrification to be a tool of the community by increasing wealth and providing increased opportunities for investment. If you are lucky enough to be in a position to take advantage of the market, consider doing it. Here are a few ways that it can be done.
Rent out a portion of your existing home
Consider staying in your existing home and renting part of it. This isn’t as outrageous as it seems, especially if you have a basement that can be converted into a separate income generating unit. This offers the opportunity to stay in your own home, receive passive income monthly and may provide helpful deductions on your tax returns.
As with anything, it is best to consider the possible downsides. These include making sure you are in compliance with any existing zoning regulations, paying up front for construction costs that may need to be done before renting, paying a property management company to deal with tenants and increased insurance costs.
Rent out your entire home
Another option is relocating to a less expensive area and renting out your entire home if your mortgage is either low or non-existent. This may allow you to move closer to family and keep the property for future generations.
Possible downsides to consider include relocation costs and moving away from an existing community you’ve spent years being part of.
Purchase an investment property with equity from your existing home
Consider remaining in your home and obtaining a home equity loan in order to purchase an invest property. This is a good option if you have the stomach for a riskier endeavor, the numbers make sense and you have a back-up plan for loan repayments in the event of slow months.
Things to keep in mind include making sure any loan you take out has reasonable terms, possible construction costs on the new property and making sure you have an emergency fund for when, not if, something goes wrong.
Whatever you decide to do during this latest migratory trend make sure you consider every option available to you. Everything changes. There is no constant. This is as true in life as it is in real estate. The only questions is where you will be when the dust settles.
Stacy R. Pace, Esq., is a graduate of Cornell University and The George Washington University Law School. She is a real estate lawyer and real estate broker practicing in Maryland and the District of Columbia. She is the owner of the firm, PACE Group in Washington, D.C. which practices in the areas of real estate and finance for individuals and small businesses. Personal inquiries can be directed to the following address:[email protected]
*Nothing written herein should be considered legal or professional advice. Should advice be sought, consult with a reputable professional to discuss the particulars of your situation.