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The word gentrification refers to a situation in the real estate industry where a neighborhood transforms from a poor neighborhood into a wealthier neighborhood. Gentrification occurs when the young middle class moves into low-value neighborhoods near cities to experience the urban lifestyle searching for affordable housing.

As more people move into these neighborhoods, the economic value of these neighborhoods increases. Businesses that cater to the upper and middle class also move into the area, further pushing property values. People who own and rent out property in a gentrifying neighborhood have to contend with new challenges and opportunities that come with gentrification, as listed below:

Increase in Property Values

Property value in a gentrifying neighborhood tends to increase over time as more middle-class residents move into the area. More businesses and developers move into these neighborhoods to cater to the upper and middle-class residents. Based on these new realities, property managers can assess the value of a property in a gentrifying neighborhood and determine its projected annual income.

Increase in Property Tax

As property values increase, so does property tax; they usually go hand in hand. It is the landlord’s responsibility to pay property tax. Since gentrification of a neighborhood increases property tax, inevitably, rental rates are also going to be increased. A rent increase may deter some tenants, but higher property taxes are not necessarily bad because the money collected from property taxes is used to pay for 911 fire rescue and police services. The provision of these services can attract more tenants to a neighborhood.

Social Issues

Longtime residence of these neighborhoods tends to exhibit siege mentality since they view the new residents with hostility. They feel the new residents have invaded their space and that the new residents have pushed rental rates and property values upwards. This friction between longtime residents and the newcomers can lead to protests within the neighborhoods. As a property manager, you need to be well equipped to deal with emerging social issues in a gentrifying neighborhood and ensure that everybody gets along.

Remote Ownership

Remote ownership is where a property owner rents out property, but he doesn’t live in that neighborhood. It means that such a landlord must have a good property manager to manage the properties on his behalf to prevent vacancies and deal with complaints.