Gentrification is a process of transforming a low-value neighborhood into a high-value one. It typically begins with middle-class “urban pioneers” who move into neighborhoods near city centers and are followed by more affluent buyers. This influx of wealthier residents leads to an increase in businesses that cater to the middle and high markets, resulting in fewer local small businesses. City governance devotes more resources to the area, and real estate developers purchase land before its values greatly increase, which rapidly spurs development. Property values and taxes increase, which affects landlords and property management.

The controversy surrounding gentrification arises from the belief that it forces poorer, long-time residents out of the neighborhood. However, studies have shown that the poor from gentrifying neighborhoods move out at most 0.5% more frequently than from non-gentrifying poor neighborhoods. The rapid change is due to succession, with new vacancies being filled with wealthier buyers and renters. Additionally, poor neighborhoods have many vacant or rundown properties to begin with, meaning that not every middle-class renter displaces an old resident.

If you own and rent out property in a gentrifying neighborhood, you will experience changes in property values and taxes. Property values increase slowly at first, but as gentrification progresses, they increase more and more rapidly. Property taxes also increase, affecting the landlord’s profitability. Despite the increased costs, landlords can increase rent rates to cover the increased expenses from taxes and other factors, such as property renovations to appeal to a more affluent market.

During gentrification, the number of families decreases, while the number of singles and couples increases, and the median age skews younger. Landlords should tailor their property to support their needs to ensure that they always have renters. However, social issues arise during gentrification, as longtime residents often feel strongly against the changes, and new renters can feel discrimination from current residents. Landlords must ensure that tenants of differing backgrounds are able to live peacefully side-by-side and that incoming renters feel safe in their new home.

If you rent out property in a gentrifying neighborhood that you do not live in or near, it is best to seek a capable property manager to handle the day-to-day issues. The enormous social issues listed above require much more attention than a unit in a stable market. The manager you select should be capable of managing complaints and maintaining satisfaction to prevent vacancies.

Gentrification can bring financial gains to landlords, but they must also consider the social issues that arise during the process. Landlords must adapt to gentrification and tailor their properties to support the needs of the new demographic. They must also ensure that tenants of differing backgrounds are able to live peacefully side-by-side and that incoming renters feel safe in their new home. By taking these steps, landlords can benefit from the changes brought on by gentrification.