Thanks for visiting. This blog is intended for individuals with Net Annual Income of $105,000 or more. Get Rich Slow + Get Rich Quick = Get Rich Slick. If you're new here, you may want to subscribe to my RSS feed.

As discussed in Part I: Baby Boomer Armageddon, the United States has some potential catastrophic financial disasters looming in the near future.  Today, I’ll write about a second lesser known issue that deals with real estate and healthcare which I’ve titled, “De-Gentrification & Geriatic-fication Armageddon”

What is De-Gentrification?

Gentrification is defined as “the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces earlier usually poorer residents.”

I’ve added the “de” prefix to indicate the reversal of that processes.  The basic theory is that as the population ages into their 60’s so too does the desire to relocate from Northern colder and higher cost of living states like New York, Pennsylvania and Illinois to warmer less expensive states such as Arizona, Texas and Florida.

If the common assumption that most people simply don’t have enough money for retirement holds true and that most people’s greatest asset and net worth is tied into real estate then it makes sense to tap into that asset either via reverse mortgage or sale of property.

While reverse mortgages sound reasonable, seniors would still have to contend with higher costs of living in northern states.  New York, Pennsylvania and Illinois all have state income taxes.  Texas and Florida do not have any income taxes.   Both Texas and Florida do have higher sales taxes but seniors may be less likely to consume as many taxable products (Ipods, TVs, etc) such as those that aren’t (food, medicine).

So what does this mean?

In a nutshell, I suspect that seniors will tap into their real estate assets, liquidate them and use the proceeds to purchase lower cost housing in a southern/warmer state and use the remainder of the proceeds to pay living expenses.   As this process occurs, those areas that contain a greater amount of seniors (typically wealthier & larger homes in an area) will undergo de-gentrification.  “For Sale” signs will go up relatively quickly and friends that move away will encourage others to join them in warm and sunny Florida.

The complexity increases when you factor in the fact that most seniors typically live in larger homes and the population is generally shrinking.  Where a baby boomer might have had 4 or 5 kids and purchased a large enough home for this size family; todays typical family consists of 2.3 kids and can get by with smaller accommodations.

What about Geriatricfication?

Geriatrics refers to the fact that there is a specific field of medicine dedicated to treating disease and ailments relating to seniors. In this context, Geriatricfication, refers to yet another layer of complexity to the issues we face in the future.  Specifically, the aging population will have medical, housing and transportation needs that are radically different from today’s landscape.   I suspect the housing that will be preferred by seniors will be those homes that don’t have any stairs or steep inclines; homes whose bathrooms have railings, lower reaching cabinets, and lastly easily accessible transportation systems that can accommodate wheelchairs, walkers and other aides.

How is this a potential financial disaster?

If you live in northern states and have a great deal of money tied up in real estate such as homes, rental or commercial property, you need to truly asses who your customers are and where they will be in the near future.  In a worst case scenario, you could find yourself saddled with a great deal of overpriced real estate that no one will want much less could afford.   The local economic base may also deteriorate as high income seniors liquidate their holdings and move south.  Small business could suffer terribly if seniors no longer patronize flower shops, coffee shops, doctors, dentists, hospitals, jewelry stores, and such in the area.

What about the southern states?

Real estate and healthcare providers may benefit to some extent but my suspicion is that seniors will target smaller homes, condos and apartments to keep living expenses down.  Healthcare may become a boon in southern states and may explain why hospital growth in places like Houston is exploding.  One hospital chain, Memorial Hermann, is expected to add 13 more hospitals over the next 5 years to the Houston Metro Area alone!

What should the prudent investor do?

This is a tough one.  I’ve already explained why I will personally be avoiding mutual funds and the stock market general as 2011 approaches.  This scenario gives people some food for though who are thinking/planning on putting all their eggs in the real estate basket but it may be sensible to take some of the equity out of your home and purchase some property in the area where you plan on retiring.  Doing so now can help create an income stream and a possible future home for yourself when you get closer to retirement.