The main goal of investment is to turn a profit, but that investment can also bring about a positive change in some situations. Investing in low-income neighborhoods can make a difference to the community as a whole and also to the people who live there.
According to several reports, companies investing in low-income communities can help increase income levels and job retention in those areas by as much as 10%, but often more. A heavy investment paired with comprehensive community development will also improve the overall quality of life and lower the rate of crime in low-income communities.
In the modern world, information and data help people understand the impact of their actions. There is a massive amount of research that proves investing in low-income neighborhoods decreases income inequalities.
For those interested in comprehensive community development, investing in projects and programs in a low-income community is the best way to effect measurable change that will offer benefits for several generations.
More than just creative partnerships, responsive plans that start at the grassroots level are able to drive fundamental positive changes that are also long-lasting.
Ways to Invest in Low-Income Communities to Make a Positive Impact
Want to help close the wealth gap? Here’s how.
Promote affordable housing and community development
Promote affordable housing and community development to create stable, thriving communities, and support economic growth. The Obama Administration launched a Housing Development Toolkit to help cities and states create affordable housing, promote equitable development, and build strong communities.
The toolkit includes model policies for inclusionary zoning, which is one of the most effective tools for creating affordable housing near transit. When investing in affordable housing, ensure that you are going to have a positive impact on your dollars and it won’t promote overpriced rent. Even if you are simply buying a single investment property, think about ways that you can still drive positive social impact to the community such as using local labor for repairs or buying supplies for local business owners.
Invest in education and workforce development programs
Providing access to quality education and training opportunities is essential for people to develop the skills and knowledge they need to succeed in the workforce. Quality education and training opportunities can help individuals gain qualifications that are recognized by employers, which could open up new job opportunities.
Quality education also teaches individuals how to think critically and solve problems, which are important skills for success in the workplace. Additionally, quality education and training can provide individuals with the confidence they need to take on new challenges, as well as help them to network with other professionals in their field.
By providing access to quality education and training opportunities, we are giving people the tools they need to succeed in the workforce.
Take advantage of the opportunity zones created by the Tax Cuts and Jobs Act of 2017.
If you want to invest in low-income areas, but don’t want to deal with all the hassle of verifying your investments on a local level, there’s an easier way: take advantage of special tax breaks created by the federal government.
The Tax Cuts and Jobs Act of 2017 created what is known as “opportunity zone” designations for certain areas within low-income communities. Investors who put their money into these designated areas can defer capital gains taxes if they reinvest in opportunity zones—and receive a tax credit if they do so.
The goal of these opportunity zones is to spur economic growth in low-income areas. They make it easier for investors to invest in local businesses, which can help create jobs and revitalize struggling communities. These are several apps that you can use to find Opportunity Zone Investment opportunities.
Support entrepreneurship and small business development
Outside of real estate investing, encouraging entrepreneurship and providing access to resources and support can help to create jobs and stimulate economic activity in low-income neighborhoods. By creating an environment that is conducive to business start-ups, entrepreneurs are able to take advantage of available opportunities, while also providing a much-needed boost to the local economy. Access to resources such as capital, training, mentorship, and other forms of support can be invaluable for those looking to start a business.
This can provide new opportunities for employment, which can in turn help to lift people out of poverty. Furthermore, the taxes generated by these businesses can go towards public services that benefit the community at large, further contributing to economic growth. In this way, encouraging entrepreneurship and access to resources and support is an effective way of promoting economic development in low-income communities.
Work with real estate investment groups, but do your research.
If you’re looking to invest in low-income neighborhoods, it’s important to do your research before jumping into anything. You can’t just pick a real estate investment group out of thin air and hope for the best. If a company doesn’t have experience with these kinds of properties or they don’t seem legitimate, walk away. It may seem like an easy way to make some money, but there are risks involved if you don’t know what you’re doing or who you’re working with. Plus,
You need to make sure that the company will give you solid advice and won’t take advantage of your desire to help underprivileged communities by giving them bad advice or selling them overpriced condos that no one wants to buy. You need to ensure they are building low-income housing that will actually help the community and they’re not just looking to make a quick dollar.
It’s also important not only that their projects are successful but also that they benefit the community as much as possible by providing jobs and other opportunities where none previously existed—and even better if those jobs provide pathways into entrepreneurship later on down the road.
Live in the neighborhood or community.
No matter the size of your budget, you can start investing in low-income neighborhoods. You’ll be surprised at how much money you can save by simply living in a lower-income area as opposed to an affluent one.
The first step is to live right where you want to invest. If you have enough funds, consider buying a home or renting an apartment there. Get out into your community and get involved—get to know the people who live there and what they need from their government and local businesses.
Find out if the community needs any additional services or assistance, then decide how much time and money you want to spend providing these things (or helping others do so).
Become an Airbnb host.
As an Airbnb host, you can share your home with guests from around the world. You can rent out a spare bedroom or even your entire house to travelers looking for a place to stay while they’re away.
This can provide affordable housing or transitional housing assistance to a low-income neighborhood if you offer a room for rent or even offer your entire house as a rental property. It’s a small step that can truly leave a big impact.
Invest in infrastructure and public services
Investing in infrastructures, such as transportation, utilities, and public spaces can help to improve the quality of life in low-income neighborhoods. These investments have a positive effect on economic development by providing jobs and increasing access to services. It also allows people to access other job opportunities in an easy manner.
For example, better transportation systems can make it easier for residents to get to work or school and reduce commuting times. Investing in utilities like water and sanitation facilities can reduce health risks associated with poor hygiene conditions.
Finally, public spaces provide areas for people to come together and build community, which is vital for the well-being of a neighborhood. Therefore, investing in infrastructure can have great benefits for both economic development and the quality of life in low-income neighborhoods.
See Related: Best Investments for Low-Income Earners
Engaging and empowering community members and leaders
Involving community members and leaders in decision-making, providing opportunities for leadership development, and supporting economic development can help build capacity and promote prosperity within low-income communities. This allows local leaders to have a stronger voice to spur change within local governments, including local housing authorities, tax planning, and community development corporations.
The reason this works is that it creates a sense of shared responsibility and ownership. When community members are involved in creating solutions, they will be more likely to support them and see them through. This also helps build trust among local leaders and government officials, which can help facilitate community development projects.
What Happens When You Invest in Low-Income Neighborhoods
It is always a question about the quality of life that a community starts out with and when it will end up when choosing to invest in low-income neighborhoods. Depending on the type of investment, real change is possible in marginalized communities.
For example, when investment is made into community centers and other centers for activities for youth, the amount of crime tends to go down dramatically. Giving youth in these areas options to express their creativity and hone their talent will reduce the amount of time they are out on the streets running into a rougher crowd.
Investing time and money into providing quality shopping centers, healthy food outlets, and other commercial points will bring more commerce and also more jobs to low-income communities that will benefit directly from the growth.
Investing in job training and trade programs in low-income areas also gives people in that community a way to improve their circumstances while also improving their local area’s look and quality of life.
There is a clear and measurable correlation between investments in improvement programs and community centers and the income levels of these same communities. Investing in healthcare clinics, libraries, and even wellness centers also helps improve improvement rates while cutting down on preventable diseases.
Low-income communities are highly resilient, and the people living in them often are able to maintain their ground when faced with a wide range of challenges.
Instead of being decimated, investing in such communities results in quality-of-life gains that trickle up not only in the local community but also on a wider scale.
See Related: Anti-Capitalist Investing: Meaning & Can It Work?
How Investing In a Low-Income Community Can Close the Wealth Gap
Investing in a low-income community as a personal investor or as a business is a great way to help others while also increasing your profits. The main goal should never be only profit because there is always a chance that you will never do anything other than break even.
However, investing in a low-income community is certain to help improve the quality of life for those who live there. Often, there will be several years of loss before a profit is made, but the benefits of investment for locals are generally immediate.
You can use an app like Dealcheck to analyze a potential real estate investment in your area. The raw data in the improvements can also be used to encourage other investors to come to the area. It is also a useful tool that can be used to work with policymakers in government when trying to convince them to allocate more resources to a specific low-income community such as tax credits, urban development, and affordable rent programs.
Many foundations and developers will request research and hard data when they are interested in scaling up their investments in low-income communities. This can also help to revive a low-income community locally while also encouraging similar investment in community development projects all across the country.
See Related: Best Impact Investing Jobs
Challenges You May Face Investing in Low-Income Neighborhoods
Investment of any sort comes with risks and challenges, and the same holds true when investing in low-income neighborhoods. The main challenge of investing in lower-income communities is slow gains and opposition from some parts of the community.
Investment can be viewed with suspicion by those who are used to hearing promises of advancement only to be taken advantage of by those with more means. Older people are also more suspicious of change, and it can be hard to win them over in the beginning.
If you want to invest in low-income communities that have a typically higher crime rate, you will face some losses and even threats from criminal factions in the area before things start to balance out.
While these things may seem hard to overcome, it is critically important to keep moving forward. Investing in low-income neighborhoods decreases income inequalities between the middle class and the very poor, which offers long-term benefits to both classes.
Progress will typically be slow, and the gains you do see will often be uneven. This is true for every low-income community, regardless of what type of investment you choose to make. For the quickest social gains, investing in a healthcare center or community center will give the quickest benefits as it helps those in the community who may be overlooked otherwise.
Economic inequality is deepening all over the nation, and for real change investing in infrastructure upgrades and job training centers will offer the most dramatic effect. These types of comprehensive community development programs and investments may be slow to develop, but they produce results that will bridge that gap over the long term.
Investing in retail or business is the riskiest of all in low-income areas, but the returns are much greater if you can tough out the rough years. Creating jobs and providing a service the community needs will allow them to spend their earnings locally to improve their community. As local opportunity grows, low-income families will have a better chance to do more than just survive, and they can thrive.
See Related: Best Investments for Young Adults
How Companies Are Investing in Low-Income Communities
There are so many options for investment when it comes to low-income communities. Private investors and those looking to flip houses help but can only go so far. Companies who choose to invest in low-income neighborhoods can spur lasting and impactful change that is worth noting.
Companies are in a better position to make unconventional investments that are more sustainable. For example, if there are existing community-based programs and businesses in the area already, instead of investing in new competing services, companies can invest in improving those that are already in existence.
This not only supports community growth but also encourages community-based growth. Thinking about the target will also tell you how to invest in low-income communities sustainably. It is easy to buy land or open a store, but to invest in something that sustains itself takes a bit more effort. Companies that target needs in the community that also align with their values, then a sustainable improvements can be made.
For example, big pharma could invest in local pharmacies and healthcare programs for low-income people. Not only will this serve a need, but the nature of these services makes them sustainable. Big companies investing in low-income neighborhoods decrease income inequalities, and they also help generate bigger changes.
See Related: ESG Investing Trends
Tips For Real Estate Investing in Low-Income Neighborhoods
The property prices in any neighborhood are generally a good reflection of the income level of the residents in that community. Low-income communities tend to reflect low property prices in both residential and commercial areas. While this may seem like a bad thing, it is actually a great opportunity for a savvy investor who is also interested in helping decrease income inequalities and closing the wealth gap.
Real estate investing in low-income neighborhoods is not only profitable, but it is also a way to help transform the neighborhood for the better. We have some tips and suggestions that will help you be successful.
Understand the Community First
When considering real estate investing in low-income neighborhoods, it is important to understand the community before purchasing. The chance of profit always exists when dealing with real estate investments, but the margins are what will differ when the community is low-income.
Place-based investing is an art form that requires proper research and planning in order to be successful. For those who only have a little bit of investing or are looking for quicker returns, upper-level low-income communities are an ideal target.
For those who have more time or more money to invest, blighted and to-be-avoided communities are a great target. Both offer prime opportunities to improve the communities while also offering a profit to investors.
Consider Alternatives Methods of Acquiring an Investment Property
Buying property in low-income areas is not very difficult. You can acquire properties from foreclosure sales or actively search for homes for sale from sellers looking to relocate.
In some cases, you can even purchase property from tenants who can no longer afford a mortgage but would gladly stay in their current home as a renter.
With so many people out of work and those on a limited income generally carrying more debt than they can handle, investing in real estate may be the quickest way to improve a community without changing the demographics of the existing population.
Consider the Risks Based on the Needs of the Community
Buying properties for their rental potential offers a faster way to see profits, but some risks are involved. Purchasing property for rehabbing is more costly, but the returns will also be greater. Or, consider what the community thinks of larger-scale affordable housing projects in the area.
The same is true for purchasing commercial property in a low-income area. You can often find land or even buildings below the market rate. Investing in this land and then developing it to create commercial centers for the community is a great way to earn money and provide a service to the community.
As more jobs open up in an area, more people will also move in, which will help the community’s income levels overall. Depending on the amount of money you have to invest or the type of connections you have, it is possible to bring in a group of investors that can overhaul a low-income area more effectively.
For example, a group of investors can buy land big enough for a small mall or retail park. You can then contract retailers and other community growth organizations to engage the community and set up shop on that land.
The investment will pay off by spurring economic growth and offering locals a way to spend their earnings in their local community instead of traveling elsewhere to spend the same money.
Take the Chance to Understand Your Potential Tenants’
Dealing with tenants in a low-income neighborhood is a delicate matter. In most cases, people who make less are able to afford only minimal rent amounts. Although they are low-income, most work very hard.
You will need to have clear rental terms and policies that protect your investment and take the community’s needs into account. Choosing a property located near schools is the best choice for lower risk, but those located near retail centers and highways are also great choices. These areas are the easiest to improve and also have the biggest ROI potential.
Frequently Asked Questions (FAQs)
Does affordable housing actually help improve communities?
Yes, affordable housing investment can help to improve communities in a number of ways. Affordable housing refers to housing that is available at a cost that is below the market rate and is therefore accessible to households with low or moderate incomes.
The most prominent way that affordable housing can improve communities is by providing access to safe and stable housing for low-income households. Affordable housing can help to reduce homelessness and improve housing stability, which can have positive effects on health, education, and overall well-being.
In addition, affordable housing improves communities by promoting economic development and social inclusion, providing opportunities for homeownership and wealth-building, which can help to create more resilient and equitable communities.
Is affordable housing good?
From a societal standpoint, there are many benefits to having affordable housing available for those who need it. It helps to ensure that everyone has access to decent and safe housing, which is essential for overall well-being. Affordable housing also helps to create more inclusive communities and can encourage economic growth by providing opportunities for people of all income levels to participate in the local economy.
What are effective strategies for promoting economic development and increasing wealth in low-income communities?
There are many ways to help stimulate economic growth in low-income communities, including investing in education and workforce development, supporting entrepreneurship and small business development, promoting affordable housing and community development, and investing in infrastructure and public services.