In the cyclical nature of the American economy, even entire neighborhoods can recycle every so many years. And harnessing these shifts can be very profitable. In this Mobile Home Park Mastery podcast we’re going to explore the conditions that create gentrification and how to monitor and spot them.
Episode 419: All About Market Gentrification Transcript
Back in the 1990s, I came across a mobile home park. It wasn't being actively listed for sale. It had the typical bells and whistles I was looking for back then. It was definitely a heavy turnaround type of deal, but I didn't go forward with it, despite the fact the price was dirt cheap, besides the fact the seller offered seller financing. The problem was that I couldn't come to grips with the neighborhood. It was so bad that I just did not feel comfortable with it. I have an old saying that there's no park worth dying for. And this neighborhood was a little scary. So didn't go forward, didn't press the fact, didn't buy the thing. And then about a decade later, I came to find out that my partner Dave had in fact bought that park. I thought, wow, I'd like to see it now in the post turnaround because he bought it years earlier. So I was over down in Dallas, Fort Worth. I went over to look at the park and it was not the same park I had looked at. No, it was the same property, but the neighborhood had changed dramatically. David called it perfectly.
I had passed on it because I saw no future to that area. But Dave saw the potential in it. He saw that the neighborhood was coming back to life, and it was a very good buy for him. This is Frank Rolfe with the Mobile Home Park Mastery podcast. We're going to talk about the concept of neighborhoods changing, changing direction, coming back up again. For most people, this is known as gentrification. In a politically correct America, I'm sure people will take offense at almost any term, but the bottom line is that often throughout America, neighborhoods run in cycles. They go down, they go up. The act of going up, that's when you'd want to buy it. And I call this concept gentrification. Now, here are some of the triggers that can cause gentrification and some of the ways we can spot it a little in advance. Because there's no better way to make money with a mobile home park than to buy something in an area that's undesirable but yet you know better. And then hold it through the period where everything completely changes. Rents go up, occupancy goes down, values soar. So let's go over some of the pieces that cause this renewal of areas that were formerly not well thought of.
The first one is home price. That's a good bellwether throughout America of things that are desirable to live from, undesirable. And when you see a steady rise in home price, it's a very good signal there's something dramatically changing in that neighborhood because we can't see it as outsiders, as strangers in most markets. We're not a local. We don't know all the inside news and gossip. So the best way we can spot things is by home prices that are going up. And sometimes when you look at some of these neighborhoods, you will see a bright spot in home values against others, even though you are not necessarily on what we considered the positive side of town. Case in point, we owned a park once in Dupo, Illinois. Now, Dupo is right next to East St. Louis, one of the poorest, most dangerous neighborhoods in all of America. However, Dupo has been on the rise because even though its proximity is a little sketchy on the approach, when you get in there, it is somewhat separated from the problems of East St. Louis. Physically there are some buffers. There's a highway, there's a lot of mining activity, and this gives it a little greater value, even though many people would dismiss the whole general area and say, "No, no, no, I don't want to be on the east side of St. Louis."
You will sometimes see these little microcosmic areas that can work, and you'll spot them simply through home price. And you can accomplish that by going to bestplaces.net and just simply putting in these catchphrases, these zip codes, and seeing areas that have higher home prices in the surrounding areas. And so home price is a great way to figure it out, but it gets kind of complicated because you'd have to be tracking a whole bunch of home prices and watch for gradual increases, and that can be very time consuming. So here are some easier ways to potentially spot these neighborhood changes. One is opportunity zone rebuilding. Now, opportunity zones are a tax advantage program where if you invest in areas that are considered blighted and help bring them back to life, you get certain tax advantages from the US Government. And the big deal in opportunity zones are people tend to dump a lot of investment money into them in a very targeted little slice, demographically of the city and what it does, it kind of artificially bolsters and makes that area more prone to gentrification.
So if you look at most opportunity zones, you will see there's increased activity as far as retail building, multifamily building, lots of money that is pouring in, people chasing after those tax benefits. And while opportunity zones have not proven to be a big thing for the mobile home park industry, like, I have not seen any mobile home parks built new in any opportunity zone. A lot of mobile home parks are sitting in there in those opportunity zones, and they're going to benefit from all the dollars being spent on everything else making that neighborhood much more desirable. And if you really care about this concept, you can go and find the opportunity zones. They're publicly available on your computer right now. You'll also notice these little niches within opportunity zones where they're not always in blighted areas. Some of them are in nice parts of town already. It's kind of weird, not sure how it happened. But nevertheless, finding opportunity zones in the markets you're interested in, that could be a good bellwether of a future gentrification of that neighborhood. Also, another big one is highway and secondary street road expansion. Now, many people do not realize all the information that is known, state, county and city level is completely available either online or in printed form or just conversationally, because road projects are completely open to public viewing.
If you look at how they work, they start off in fact with typically public forums with questions to get public input into the original concept of the road expansion or new build. And then that's followed by a general idea of where the road would go and then buying of right of way and then final plans. Then they take it out to bid, then they let the project to be built, and then finally completion of the project. There's a lot of steps involved in this. And as a result, you can learn not only a lot of where things are going, but you also see the future path of progress. Many times people have been able to spot future improvements simply by road expansions and new roads being created. So that's one way you can always definitely in advance spot future gentrification of certain neighborhoods. Another one are transit stops. Now transit stops, that's how Dave knew that property in South Fort Worth, that it was going to go somewhere is he saw that there was a transit stop planned that was going to go basically right by the park. And traditionally, when they do these transit stops, like places where light rail stops, then people invest around that.
A lot of retailers like to be there and it generally just buoys the neighborhood. And again, this is open to public view. You can contact the transit authority and find out if they do have any planned new transit stops of where they would go. So that's fully within your ability to obtain. Also, of course, new factories and plants moving in. Now, the way you would watch for this is by being a very avid reader and follower of all the information from the market. Sometimes these projects are announced very publicly. Sometimes you might have to be a member of the chamber of commerce to truly follow it. But, there's noting that breeds more capital investment in the market than some giant new employer going in. We were lucky enough to bone a mobile home park in Kansas City, Kansas, on State Avenue, back when they were building the Legend Speedway. And for some reason, not a lot of people had caught on to what was going on there. But we sat and watched our rents increase and our values go up. Not because of things we were building, we were keeping the park nice and bringing it back to life.
But there was this giant employment driver just down the street, this huge NASCAR track, a million square foot mall went in, a casino went in, hotels went in. And again, when those kinds of activities begin, it's going to bolster the values of every kind of proper real estate usage surrounding that. Another time you see a lot of gentrification is when you have a border city, a city that spans two states and one state is doing a terrible job, and people are wanting to move over to the better state while still being within the easy drive of their employment. Example of that is not far where I am, right in St. Louis, Missouri, because the Illinois side of the river, it right now has high tax and a lot of terrible leadership and decision making coming out of Springfield, the capital. But the Missouri side is doing great. Missouri side, we just ended tax on capital gains, we legalized marijuana, we legalized gambling, we have very low state income tax. And they're talking right now about eliminating state income tax. So people in Illinois are pouring over the border into the Missouri side of St. Louis.
And sometimes if you look at neighborhoods they were not even doing that well that were somewhat struggling, you'll see why the influx of lots of people who are unhappy on the other side of the state line, that can also help to bolster gentrification of those neighborhoods. The bottom line is you can never write places off. Everything in America runs in cycles. All our economy, interest rates, but so do neighborhoods. They can go up, they can go down. You can watch them within your lifetime go up, then down, and then back up again. But you always want to keep an open mind because you never know when things have changed. And being able to harness the power of neighborhoods in transition can be very profitable. This is Frank Rolfe with the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.