New Orleans, Louisiana (NOLA), is anything but simple. From its 73 “official” neighborhoods that some locals claim do not really exist to its storied history replete with pirates, natural disasters, and one of the country’s first “skyscrapers” (erected in 1807), the city is a beautiful and confusing cultural and architectural mishmash to outside investors. Within its highly specialized real estate investing community, however, investors are getting on with business as usual; although in this market the “usual” certainly has a bit of flair and, appropriately enough, a hint of mystery.
A perfect example: “Right now, my partner and I mainly do rehabs and flips,” said Braden Smith, CEO of REvitalize Property Solutions. “We also do some new construction,” he added. Smith noted that at present, he and his business partner are steering clear of purchasing rental properties in the area, not because he does not think they are a good investment, but because he believes the market is overdue for a correction.
“We will be getting into rentals in the near future. We’re past due for a dip in New Orleans, so right now we’re focused on building up our capital so we’re ready to buy when that happens,” he said. “Prices will be lower, and we’ll be ready to act.” According to ATTOM Data Solutions, Smith’s flipping strategy is perfect for building capital given his location: ATTOM’s Q4 and Year-End 2017 Home Flipping Report indicated that gross flipping return on investment (ROI) in New Orleans was about 92.9 percent last year.
In some areas of the NOLA metropolitan statistical area (MSA), prices are already starting to level off and even decline, noted Real Property Associates in a report published earlier this year. “Single-family home sales were down in Orleans Parish in 2017 but rose in the suburbs,” analysts noted.
The New Orleans metropolitan statistical area, the “metro area” for short, is comprised of the eight parishes (Louisiana’s equivalent to counties) surrounding the city of New Orleans. According to that report, neighborhoods in the West Jefferson Parish boasted the biggest leaps in home value, adding 15.4 percent over the course of 2017. 10 ZIP codes in Orleans Parish lost value during the same period of time, with the largest loss one of 11.6 percent.
Smith noted that he and his business partner are still active in Orleans Parish. They recently purchased a “classic New Orleans shotgun double” (see an example of this architecture in the image at right) they are converting to a single-family home. He predicted that the renovation alone will cost in excess of $100,000 but will leave plenty of room to list the property for a relatively fast sale.
“We focus on relatively lower-priced properties that sell, after rehab, around $350,000 or less because those move faster than anything else,” Smith said. “There is a severe lack of affordable housing across the country, and that is definitely true in the New Orleans area as well.” He emphasized, “Speed is the name of the game, so we’re steering clear of high-end spec builds and renovations because they take longer to sell. You have to hold them longer while you renovate them, and both the holding costs and the rehab costs are higher.” In reference to the dip he sees coming, “We also just don’t want those high-dollar properties sitting out there on the market when the market takes a dive.”
A Hard History for Housing
New Orleans was founded by a French trader in the early 18th century, sold to the United States in the early 19th century, and was home to the country’s largest slave market until the end of the Civil War. The result of such massive, forced immigration and a bustling local economy led to the formation of a uniquely blended, extremely wealthy but largely unbalanced economy that deteriorated in the late 19th century after slavery was abolished. By the start of the 20th century, the city’s population was in decline. By the end of that century, the local economy was largely dependent on tourism and suffered a massive blow in 2005 when Hurricane Katrina battered the city and the Federal levee system failed.
Although most residents had evacuated by the time Katrina flooded 80 percent of the city, roughly 1,500 people died in the wake of the storm. Tens of thousands of residents left the area completely while clean-up was underway. Many did not return. It was not until 2010 that U.S. Census Data indicated non-flooded neighborhoods had returned to their pre-Katrina populations. More recent numbers indicate that the metro population as a whole is still significantly lower than it was prior to the disaster.
Traditionally, housing markets hit with “supply shocks” like natural disasters often follow a sharp dip in home values with swift corrections, observed First American Financial Corporation chief economist Mark Fleming in a post on the title insurance company’s Economic Center Blog. Fleming noted that Katrina reduced housing stock in Orleans Parish by half. “It wasn’t until 2009 that the housing stock materially rebounded and, as a result of migration away, New Orleans is a smaller city today,” he wrote.
The reduction in housing stock did cause a significant increase in home price appreciation in the year following the hurricane, but those gains were largely lost in 2007. Values continued to fall until mid-2012, when they began climbing once more. In the interim, the city’s tourist and convention industry, sports teams and events, and vibrant cultural scene returned, evolved, and expanded.
What Makes NOLA Special
Ask any local what makes this city special, and you will likely get an earful of local lore, legend, and culture. The city’s rich history plays a large role in the success (and failure) of real estate investments. Prices may vary dramatically in the space of a single neighborhood, and local insight is a necessity. For example, in the French Quarter, the most expensive neighborhood in the metro area, prices range from $207 per square foot to more than $1,300 per square foot, for an average listing price of $521 per square foot.
Ron Mazier, executive director of the Lower 9th Ward Neighborhood Empowerment Network Association and a licensed Louisiana broker at Mazier Realty, emphasized the importance of constantly tracking trends in the New Orleans area. “I’m constantly tracking pricing data not just to keep an eye on trends, but to help locate trouble spots,” he said. When Mazier refers to “trouble spots,” he does not always mean trouble for investors. “One man’s trash is another man’s treasure,” he observed. “Sometimes the areas that are about the change are the ones with the most potential for investors, especially turnkey investors with local contacts in this market.”
A Brief Guide to NOLA Parishes and Geographic References
New Orleans’ metropolitan statistical area (MSA) encompasses eight parishes and 73 neighborhoods, according to the City Planning Commission’s official map of the area. It is important for real estate investors to realize that many of these neighborhoods are bureaucratic inventions, however, designed to make population measurements easier for Census officials or to better distribute community block grants as far back as the Lyndon Johnson presidential administration. New Orleans, itself, is also divided by wards, which are subdivided into precincts and were originally used to govern voting and elections. The city has not had officials elected to represent wards since 1812, but it is still common for residents of the city, particularly natives, to identify themselves or other areas of the city by ward number.
The terms Eastbank, Westbank, Northshore, and River Parishes are also often used to describe different areas of the city. These terms are somewhat flexible, but Eastbank usually refers to the metro area south of Lake Pontchartrain and east of the Mississippi River, while Westbank refers to the areas of the city south of the lake and on the western bank of the river. This can be confusing since the curves of the river create a situation wherein Eastbank might also be seen as being north of the river while Westbank is south of it. Northshore, or North Shore, refers to the areas north of Lake Pontchartrain. Technically, much of Northshore lies outside the New Orleans MSA but is closely tied economically to the community. The River Parishes are the parishes along the Mississippi River between New Orleans and Baton Rouge.
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at firstname.lastname@example.org.