If you have ever dreamt of owning a rental property, up and coming neighborhoods are some of the best places for real estate investing. If you can spot real estate investment opportunities in such a neighborhood before it becomes hot, you can buy properties at a great bargain and make a high return on investment.
So, What Are Up and Coming Neighborhoods?
Up and coming neighborhoods are those neighborhoods in large urban metro areas and cities where real estate investment is still very low. Quite often, these are areas that are neglected, run-down, and they might even have a high crime rate. However, such neighborhoods quickly transform into popular locations teeming with new life, new residents, new businesses, and very high real estate demand.
Up and coming neighborhoods are the best places to invest in real estate for the first-time property buyer, as well as those with a limited budget. The idea is to jump into the affordable real estate markets early before everyone sees the opportunity.
Identifying up and coming neighborhoods can be quite tricky though. What if you purchase an income property in a neglected area that doesn’t get hot as anticipated? Here is how to tell what neighborhoods are up and coming:
9 Ways to Identify an Up and Coming Neighborhood
1. Neighborhood Data Forecasts Positive Future Trends
The neighborhood data of an area will give you an idea of whether it is up and coming. Some of the stats you need to look out for include median price, cap rate, cash on cash return, occupancy rate, real estate appreciation, and rental income. However, when looking at data, take note of areas that are improving, not just those that have good data. If the figures have been going up for the past few years, then it is probably a good neighborhood for buying a rental property.
The good news is that such data for a housing market forecast is readily available on sites such as Mashvisor. Try out our Heatmap Analysis Tool. This tool will help you quickly and easily perform a neighborhood analysis.
Related: Real Estate Heat Map: A Revolutionary Tool for Neighborhood Analysis
2. Rapidly Declining Days on Market
Days on market (DOM) is another great indicator of the potential of a neighborhood’s housing market. DOM is basically data that shows how long a real estate property has been up for sale. The best way to get an idea of the days on market is to check listings of comparable properties in the area. If they have been on the market for 120 days or more, this is not a good sign. However, if over time, the DOM starts to drop and continues this trend, it is a good indication of an up and coming neighborhood. Hot markets will eventually have a DOM of 30 or less.
Related: How Average Days on Market Should Affect Your Investment Decision
3. Influx of Artists
Artists and musicians that are looking for cheap rent are likely to find a home in rundown and neglected neighborhoods. With time, such neighborhoods could end up looking ‘cool’ just because certain artists live there. The people who follow them might, therefore, end up moving into the area as well. As a result, there is likely to be a huge demand for rental properties. Keep an eye on local artists to stay informed on neighborhoods that could be hot in the next months.
4. Historic Architecture
Historically significant buildings are a sign that a neighborhood is likely to become popular in the future. If an area is characterized by Victorian, Tudor, Federal, or Spanish-styled properties, property buyers will eventually fall in love with the architecture and begin investing. Don’t forget to look out for abandoned warehouses or factories that could end up being repurposed into commercial and residential investment properties in the future.
5. Retailers Checking In
Major retailers spend lots of money on market research before deciding where to open their next shop. Watching the movements of such retailers could, therefore, give real estate investors a good idea of the next hot neighborhood. Studies have shown that when retailers such as Whole Foods and Starbucks move into an area, the property prices automatically increase. Besides big-box retailers, real estate investors should also keep track of independently owned shops and restaurants. Bustling restaurants and bars popping up all over could be the first indication of a transition for a neighborhood.
6. Declining Crime Rate
One of the first considerations by potential tenants is security. If a neighborhood is safe, more people will want to live there. Therefore, be sure to research the local crime rates of the up and coming neighborhoods you are targeting. You can use a heatmap tool to check the overall crime rates of an area. Local newspapers, news sites, and blogs can also be a good source of information on the crime rate. Alternatively, you could create a crime alert on sites such as crimereports.com. If a neighborhood has been getting safer over time, it is a sign that the housing market is about to open up and be a good place to start investing in real estate.
Related: Best Places to Buy Real Estate: 5 Cities with Low Crime Rates
7. Proximity to Other Hot Neighborhoods
If you see a neglected area located close to a popular neighborhood, chances are high that it will become a hotspot as well. Naturally, development expands outward and surrounding areas can be considered up and coming neighborhoods. As home values and rents go up in a location, people usually move outwards looking for more affordable alternatives. This is referred to as the ‘creep effect’ and is common all over the world.
8. Accessible Public Transport Systems
A neighborhood’s proximity to public transportation is a good indication that it is up and coming. When public transport infrastructure is added in a location, property values are likely to increase significantly over time. Watch the news and look out for areas where new subways, freeways, and bridges are scheduled to be constructed. You could also visit the local authority offices to find out the latest plans for the neighborhood where you intend to buy an investment property.
9. Realtors Label the Neighborhood as One
Real estate agents are usually the first to know which areas are the next up and coming neighborhoods. It is always wise to consult local agents to learn real estate market trends, the best investment locations, and where to find cheap real estate. Make sure the agent is someone genuine and not just someone that is out to make a quick buck. Check out their track record and read reviews from their former clients. The real estate agent should have a good success record of finding investment properties in the best neighborhoods.
Real estate investors need to realize that investing in up and coming neighborhoods is often a long-term vision. It could take years before the environment and reputation of an area change. However, with a lot of patience and due diligence, the investment in an up and coming neighborhood will eventually be worth it.