2013 has been quite a year for Buffalo, and will be a difficult act to follow. However, I think most locals will agree it was a transformational year, most certainly in terms of a sea-change in attitudes.
Relentless good news seems to have beat even the most negative Buffalonian down, finding a new, justly deserved pride in the city. A number of large new projects breaking ground downtown and in the nearby medical campus has brought cranes and more importantly, new high quality jobs. Seeing this kind of investment has brought the final realisation that the bad years of Buffalo being on its uppers are well and truly over, and we’re heading in a long-term positive cycle. Both the tangible new developments and the change in attitude are all things that keep people here and positive, which in turn attract new incomers. If you don’t believe me, just ask the Canadians (see here and here) …
2013 has also been an amazing year for Buffalo real estate, so much so that I find it difficult to believe things can stay so attractive for much longer. Not only have Gross Yields with our product remained higher than anywhere else I know (still holding at 20%-30%), Buffalo also emerged as the highest riser in the whole USA since 2006 (as I pointed out in this article).
Following from this, the main real estate themes I want to look at for 2014 is the ongoing gentrification in particular areas of Buffalo, as this is where we can still buy good value houses with yields in excess of 20%, but with the added potential of protracted capital growth as the city blossoms again.
The perfect wave is forming in Buffalo. We have a combination of quickly increasing GDP per Capita, a large inventory of beautiful turn of the century homes, a strong rental sector as people move to the city, and a market that still thinks (in terms of prices) that it’s 1982. i.e. grossly undervalued.
So what does that mean for us investors? I think we have to try to focus on the areas that are likely to benefit most from this economic growth. The main focus of gentrification is the spread out from Allentown/Elmwood Village – a middle class oasis just north of the cities’ rejuvenating downtown. Prices have risen 43% since 2006 according to Buffalo Niagara Association of Realtors, and as professionals move to Buffalo, people are beginning to be priced out of the core area, moving both west (to Westside), North (towards Blackrock), and North East (towards Hamlin Park and University). South of the area is Downtown, where a reasonable number of larger residential projects are taking shape, while directly east is the fast growing Buffalo medical campus, where ground recently broke on the new SUNY Buffalo medical research centre.
Prices remain well below replacement level (i.e. a typical $40,000 home would cost circa $100,000 to build) so its unlikely that new mid-level homes are going to be built until that level is passed, keeping upward pressure on prices and rents, and giving an element of automatic equity in any investment purchase (i.e. the bare materials are worth more than the price you paid for the house).
Rental demand remains strong, especially in the gentrifying neighbourhoods, as new people move into the area, giving potential for higher rentals as the quality of tenant improves.
It’s getting harder, and prices are rising, but I’ll try to find as much as I can in these neighbourhoods this year, to pass on the value to you guys, and lets not forget that our smart investments together play a part in the rejuvenation of this great city. I’m attaching a new list, together with some details on 69 Suffolk, a lovely suburban style house which at a ludicrously low $36,000 represents the kind of value that simply wont’ exist in years to come.
Merry Christmas to you all, and lets wish for a prosperous new year!
PS! If you feel you’ve had a good year, feel free to consider a donation to Catholic Charities, who are a local Buffalo charity (you can put your LLC address in the box). Catholic Charities help refugees settle in the area, and so help our future tenants get on their feet! Click here to donate!
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