If you are a real estate investor or a residential rehab professional looking inside a city for places to buy a house to fix and flip, chances are you are going to be skirting over distressed areas, places with run-down buildings and empty lots. Even though you can purchase those buildings for a lower cost, they are rarely worth the investment. After all, people aren’t going to pay higher prices to live in a nice house in a bad neighborhood. Traditionally, there are smarter uses for using your hard money loan from Socotra.
Of course, that’s just an on individual level. The problem, on a societal level, is that if no one invests in these neighborhoods, nothing ever changes. There is a fairly new theory of development, called urban infill, that seeks to address both issues. It is where cities work to “fill in” underdeveloped neighborhoods with the idea that an outward-in movement will connect them to better areas, and that the whole city will bloom. This stands normal developmental ideas on their heads, and just as important for you, could provide an excellent way to do good in the city while doing well for yourself.
Understanding Urban Infill and Leapfrogging
The best way to understand how urban infill works is to use an example. Let’s take a generic city. The downtown area was the first to grow, with a few residential rings on the outside. As the interior grew, the residential rings became part business/industrial, and people started to move further and further away. The inner rings then begin to decline as the economy changes, and those rings become a mix of run-down housing, abandoned warehouses, second-hand stores barely hanging on, and the rest of the usual mix.
Now, it rarely happens this neatly, of course, but that is the general pattern. A city will have good patches here and bad patches there, with neighborhoods that people want to drive through fairly near to neighborhoods where people don’t. Normally, the theory is that people tend to move outward, and away from the latter areas. Urban infill looks to upend that.
The basic idea is that these run-down but still-standing buildings can be repaired, and the spaces can be “filled in”—you are essentially recycling the city. That’s where is starts, but as an investor, you’d be saying, well, how do I benefit? In addition to the tax benefits a forward-looking city usually provides, the theory is that “leapfrogging” will help the area in which you are investing progress much faster.
Imagine that your city block is surrounded by several blocks of distressed area, but then more developed neighborhoods on the other side. Leapfrogging says that developing neighborhoods will connect and catch up to their economic counterparts quickly. Instead of the outer neighborhoods continuing their expansion, they will have a connection with the interior, and then the areas in between will “fill in,” spurring development citywide. This theory has some detractors, but it has success in cities like Chicago, LA, and San Francisco.
How Urban Infill Can Help You
There is a reason why urban infill is becoming popular. Indeed, even large real estate firms believe that investing in urban infill areas can provide a huge return. The reason for this is that these areas are, by definition, distressed property. They are below what their value would be if the neighborhood had the accoutrements of development: stores, restaurants, transportation, and tenant-oriented dwelling.
It’s the latter that most residential rehabbers can take advantage of. New development areas are going to need to be rich in multi-tenant buildings, as well as single-family homes. The former will generally come first, and since many of the buildings are already multi-tenant, it is just a matter of rehabbing. These can then either be sold or you can buy-and-hold with the intention of renting (or hanging on until the market improves even more). Either way, as development takes place, your distressed property will rise in value, and the improvements you put in will make it even more valuable for a buyer or renter.
Urban infill is a not just a theory anymore. Cities, tired of expanses of run-down land that are bad for the residents and bad for the city, are beginning to make investments. With tax incentives, and help by city planning, you can get in on the ground floor of urban redevelopment. A hard money loan from Socotra Capital, California’s leading equity-based lender, can help you rebuild your city.
