The best ROI in hipster neighborhoods

If you are looking to make some money in real estate, check out these hipster zip codes:

Real estate data provider RealtyTrac conjured some numbers to support what everyone already knows or suspects— that, as a developer or landlord, investing in rental housing in “hipster” nabes is a solid idea. Chicago gets three hits on RealtyTrac’s just-published top 25 list of hip zips for high return on rental properties, in descending rank: 60625 (Ravenswood, Albany Park); 60647 (Logan Square, Bucktown); and 60642 (Noble Square, River West, Goose Island). Yup, they got all the usual suspects. The above chart, interactive and expandable at the source, shows the equation for investment success in “nascent hipster markets”: a high proportion of 25-34 year-olds; a ready stock of renters; a low vacancy rate; and a climbing but still low median home price relative to average rents. Wouldn’t you know it— these are the basic conditions for any successful rental investment, almost anywhere. Why all the fuss over hipsters? Probably because the “culture” that follows this trendy group around usually matches up closely to rapid gentrification. In other words, it’s the hipster as beacon. For the frugal renter trying to stay away from big money, there’s a different use for this list. Stay tuned for follow-up RealtyTrac analysis on “top hipster zips for fix-and-flip profits.”

While hipster may appear to be a lifestyle choice, this article is a reminder of the economic conditions involving hipsters. They also have money and are interested in moving into less-than-perfect neighborhoods that have the appropriate grittiness and authenticity. Thus, a savvy investor might find properties in neighborhoods on the rise and with the influx of hipsters make some money.

It would be interesting to then look at how these investment work out over time. Getting in at the right point is important but how does that investment then work out over a long period of time? What happens when hipsters stop moving in or the neighborhood is no longer the hot one? We need to see not only this data but a ROI curve.

Should every home improvement increase the value of your home?

HGTV host Sabrina Soto discusses five home improvements that might actually lower the value of your home:

Converting bedrooms into other spaces: If potential homebuyers “see it’s a four-bedroom house, they want to go to the open house and see four bedrooms. You have to take the guesswork out,” says Soto. If you do convert a room, there’s one feature you should absolutely never mess with. Watch the video to find out what that is.

Hot tubs: Soto thinks inheriting someone else’s hot tub is a turn-off — and she’s not alone. “You’d be surprised how many potential buyers find them to be a little gross.” And once a hot tub is installed, it’s not an easy feature to remove from a deck or backyard.

Colored trim and textured walls: It seems like any potential homebuyer would see these features and know they can easily paint over them, but not so fast, says Soto. “I would much rather paint walls than trim any day — it’s a beast of a job,” she says. And textured walls are “a mess to sand down and remove. The fad is over anyway, so just let it go.” If you feel your trim is outdated, see the video for Soto’s tips on what to do.

Children’s theme bedrooms: Spending hundreds of dollars on a mural for your child’s wall is throwing money away. Not only will they outgrow it in a matter of years, but “you’re never going to get that money back when you sell, so just keep it neutral,” posits Soto.

Too much landscaping: Conventional wisdom says you want your yard to look as nice as possible, but heed Soto’s warning: you want to “keep up with the Joneses — but don’t exceed them.” To a potential buyer, gorgeous, overdone landscaping screams high-maintenance.

My question after reading this list: what if you simply want these features for yourself and not because it might add to your resale value? Granted, if you are looking to sell your house, you might not want to pursue these options. But, if you are looking to live in your house for a while, you might decide that one or more of these features is what you want.

The bigger issue is this: doesn’t a list like this perpetuate the idea that a home is primarily an investment? That is one way to view things but there are other reasons for owning a home.

If homeownership in the US isn’t about making a good investment, what is it really about?

Politicians and others argue homeownership is a good financial investment. But, if it isn’t really a good investment, what is homeownership in the United States all about?

Politicians and pundits across the spectrum regard homeownership both as the best investment a family can make and a measure of national prosperity. But a significant majority of Americans believe differently. According to a 2012 Pew survey, 86 percent of Americans now believe the key to a middle-class life is a “secure job,” almost double the share (45 percent) who say the same about owning their home. To compare, seven out of ten respondents to a Time/CNN/Yankelovich survey back in 1991 said that homeownership was essential to middle class membership, while just one-third said that a white-collar job was required. Since 2004, the overall rate of homeownership in the U.S. has declined from 69.2 percent to 65 percent…

Of course, I’m by no means advocating that we put an end to homeownership altogether and become a nation of renters. My hunch is a homeownership rate of between 50 and 60 percent is just about right; and that’s not too far from where the U.S. is now. But we can’t hide from the fact that excessive levels of homeownership — either among nations or metros — seem to be associated with lower levels of innovation, productivity and economic development.

I wholeheartedly concur with Columbia University economist Edmund Phelps (I quoted him in my book The Great Reset) when he says, “it used to be the business of America was business. Now the business of America is homeownership.”  And, he adds, “America needs to get over its ‘house passion.'”

Americans like financial investments but they also like other aspects of homeownership. Here are a few other reasons:

1. Some have argued Americans like private spaces to the detriment of public spaces. Having a home that you control, and not just rent, is the epitome of this private space. Owning a home is viewed as related to independence and self-determination.

2. Americans like to consume and houses are another consumption object. When you own, you can put your own personal stamp on the property as well as shape the house into a reflection of yourself. (This is opposed to viewing homes primarily as dwelling places, not as individual expressions.)

3. Owning a home is historically linked to the American Dream. Being able to buy your own home demonstrates that you have made it. The American Dream may indeed change in the future but it takes time to overcome this decades-old inertia.

4. This may not come up much now but homeownership was viewed in the past as a bulwark against communism.

5. Building homes as well as buying and selling them is a big industry. There is a lot of money to be made – though homeowners themselves might not make much.

6. There are long-standing negative perceptions about renters including renters are often from less desirable segments of society and renters are less committed to a community because they are more transient and don’t have the same kind of investment in their property.

While the idea of investing in a home may soon fade, there are other influential reasons Americans choose to buy homes. Economics may be a powerful motivator but it isn’t the only one when it comes to homes.

McMansions are not retirement vehicles

In a discussion of the number of Americans approaching retirement age, one economist briefly mentions one issue: the expectation some retirees had that their homes would be retirement vehicles may be misguided.

“The fact of the matter is that this aging-but-not-yet-aged segment of the baby boomer class can’t afford to retire,” said David A. Rosenberg, the chief economist of Gluskin Sheff, a Canadian firm, noting that overall household net worth was 15 percent lower than at the prerecession peak. “Dreams of the 5,000-square-foot McMansion being a viable retirement asset have morphed into nightmares of a deflationary ball and chain.”

This is indicative of a larger shift: with the ongoing housing crisis, homeowners can’t expect to cash out their homes in the same way they might have in the late 1990s and early 2000s. McMansions are emblematic of people taking out large mortgages and then having difficulty in paying off their mortgages or moving (“downshifting”) to a cheaper residence because of the reduced value of their homes. Of course, this shift moves housing back to its historic role as a dwelling but not necessarily as a golden nest-egg for retirees.

I would be interested in knowing at which age people tend to purchase McMansions or other large homes. For example, buying a McMansion in one’s 50s might not be the best idea if someone wants to retire at 65. If a homeowner is willing to live in a home for a longer period of time, say more than 10-15 years, then such a purchase might not be as unreasonable as the homeowner can pay off more of their mortgage. Living in a home long-term may not be possible for everyone given changing job circumstances as well as the general mobile nature of American society but there are ways to help ensure one could make more money off of selling a large home.

Growing interest in the investment potential of farmland

With people looking for good investments, farmland is getting some attention:

Just how hot is American farmland? By some accounts the value of farmland is up 20% this year alone. That’s better than stocks or gold. During the past two decades, owning farmland would have produced an annual return of nearly 11%, according to Hancock Agricultural Investment Group. And that covers a time period when tech stocks boomed and crashed, and housing boomed and crashed. So at a time when investors are still looking for safety, farmland is becoming the “it” investment.

The article goes on to say that because food demand is up, particularly for corn, and crop yields are up because of improved technology. At the same time, perhaps there is a market bubble going on here and it is difficult to get into the business of owning farmland.

I find it interesting that there is no mention of land development in all of this. In areas of sprawl, farmers can benefit from skyrocketing land prices as developers and builders look to acquire buildable acreage. But this story seems to be talking mainly about farm land in the middle of country, not farmland on the booming southwest edge of the Chicago region. In the long term, is farmland more valuable because of the commodity values (which can fluctuate) or because it can eventually be sold for other profitable uses?

Perhaps this all works because it is difficult to envision too much more American land becoming farmland – the total number of cropland (and farmland and pasture) acres has dropped from over 445 million acres in 1997 to over 406 million acres in 2007. If food demand is continually strong and there is a somewhat fixed number of acres that can be farmed, perhaps this is indeed valuable land.

Making big money in real estate in the online world

A number of stories in recent years have highlighted the increasing amount of real money changing hands in online games or environments. A recent example comes from the Entropia Universe where a gamer sold his property for over $600,000:

Take, for instance, what just went down on Planet Calypso, where one of Entropia’s wealthier players has sold off his interests in a “resort asteroid” for an eye-popping $635,000.

The seller is Jon Jacobs, also known as the character ‘Neverdie’. He originally purchased the asteroid in 2005 — eventually converting it into the extravagant resort ‘Club Neverdie’ — for the then-record price of $100,000. For those keeping score, that’s a gain of over $500,000 in just five years. In nerdier terms, that’s an ROI of 535%. Match that, Citibank.

And we’re not talking about Monopoly money here. Launched by Swedish developer MindArk in 2003, Entropia Universe features a real-world, fixed-rate currency exchange that works just like chips at a casino: players trade real cash for in-game funds called PEDs (Project Entropia Dollars), which can at any point be redeemed back for real, spendable cash — minus a transaction fee, of course.

Jacobs was making money from the get-go, however, having earned back his initial hundred-grand investment in just eight months. How? By selling rights to hunt and mine on the asteroid, as well as selling off bits of real estate. He worked it much like any real world landlord, really, but with a lot less red tape and a lot more graphics.

With that kind of a return on investment, will more people flock to these realms to make money? How many people in the world make a steady income based on online gaming?

There has to be a good sociological study being done out there about these types of transactions…