I recently had a chance to speak to Rod Khleif on his podcast, Lifetime Cash Flow Through Real Estate Investing, and he asked about any “failures” in my career in real estate. While labeling anything a “failure” is a matter of perspective, the only true failure that happens is when you don’t learn. The failure I shared was less a matter of any misdoings on my part, but more how public perception was shifted about what we do at Reformation Asset Management and me, personally, via the magic of film editing and bad timing.
I had bought a multi-family property with the intention of renovating it. With due respect to the existing tenants, I let renters on a month to month lease know that we would not be renewing their leases. However, news broke about the building’s shift in ownership two weeks into that vacancy window. I answered questions from a reporter about business decisions that I still stand behind, yet through the magic of editing and spin, the story got ahead of me.
It was December. The story running was that this Big Bad Gentrifier was displacing families living in poverty during Christmas.
“Man Renovates Building In An Attempt To Make Profit Does, What He Can To Not Displace As Many Renters As Possible But Eventually Can’t Avoid The Inevitable” is a clunky headline, so I get it. It’s not catchy, it’s not quick, and it’s not scary. There’s no narrative, no story, no good guy or bad guy, so what is anyone supposed to make of it?
Here’s the thing: I’m not saying what I did was morally in the right or in the wrong. What I’m saying is that it was hard. I’m fully aware of the consequences of buying up investment properties and attempting to turn a profit while people are already living in them. I personally have been in that exact spot in my past. I fervently believe that housing is a basic necessity. Yet, change is a constant part of life, and although I, in some ways, am now a gentrifier. I have been on the other end of gentrification as a child. It’s complicated, to say the least.
I don’t know how to put this politely, but most of the properties we buy should not be lived in in their current state.The former owner did not keep up repairs or rents, and neither will I. Instead I intend to gut them to the core and make them new again. Once that has been done I will of course charge market rents, but that is also something we desperately need in our area. There just isn’t enough housing to meet demand.. I went into this career and am able to make the choices that I do with regards to my various properties because I am ready to stand behind the business decisions I make. Unfortunately, this occasionally includes displacing people who were willing to live in subpar housing only because it was cheap.
This has me thinking about advice I’d like to give to up and coming investors, otherwise known as – let’s face it – would-be gentrifiers. If you’re getting into this business, you’ll need to prepare yourself for it. Take a personal inventory: are you ready to tackle public perception and be your own defense attorney in the court of public opinion? Can you stand by your convictions? Do you even know what your ethics and boundaries are in regards to being a responsible landlord?
To protect yourself, morally and financially, set your “why” in concrete. Find a reason that will serve as your North Star as you navigate these morally murky waters. Have a plan in place, do your research, and find out how to do good by your own sense of morality. You don’t have to believe what I believe. You don’t have to be fully polarized one way or the other, but you do have to hold firm so you can move forward. You, like me, may become the poster-child for gentrification in the market you’re working in.
Are you ready to take that on?