Investing in the Neighborhood

There was recently an interesting article in the Wall Street Journal about rental investment companies spending dollars to fix up their surrounding neighborhoods in an effort to raise their own property values:

On a recent weekday morning, a crew was busy sprucing up the exterior of Koonal Parmar’s one-story house in West Oakland. They trimmed trees, pressure-washed the wood siding and touched up his paint job.

Mr. Parmar didn’t pay a dime for all this. The upgrades were compliments of REO Homes LLC, an investment firm that owns several houses on Mr. Parmar’s block. In addition to helping homeowners upgrade their homes, REO has mended fences and planted hundreds of trees along city streets.

“The neighborhood was badly in need of capital, to maintain, beautify and restore it,” said REO founder Neill Sullivan, while driving his hybrid sedan through the streets of West Oakland.

The company’s motives aren’t altruistic. They are part of a broader strategy designed to upgrade the neighborhood to attract higher-income residents who, in turn, will help boost properties’ values.

Some landlords don’t buy that logic:

Some veteran landlords disagree. “Renters can only afford to pay up to a certain amount. Spending extra money to not only improve the house, but also the neighborhood wouldn’t result in enough of a rent increase to be cost-justifiable,” said Michael Meyer, chairman of TwinRock Partners, a real-estate firm in Newport Beach, Calif., that owns roughly 250 single-family rental homes in Southern California and Las Vegas.