How to Spot a Growth Area When Buying a Home

Story Highlights
  • Analyze the Rental Market
  • Recognize Gentrification
  • Note Infrastructure & Public Transportation Status
  • Keep an Eye Out For New Entertainment
  • Know What You Can Do On Your Own

Personal concerns top all others when you’re buying a home.

Above all else, you’ll want to make sure that the home meets your own needs and those of anyone you may be living with. The neighborhood needs to feel comfortable, you need to be in a location you enjoy, and of course, the house itself should feel right.

Once you get past these personal concerns though, it’s a good idea to think about the property itself, and how its value might stand to increase during the time you live there.

So, below are a few tips for how to spot a growth area when seeking out your next piece of real estate:

Analyze the Rental Market

Analyzing the rental market in a given area is easier said than done, but it can provide a fairly clear indication of whether or not an area is poised for growth.

One very interesting article on this very topic recommended you do your own research using what’s essentially a formula that should give you a good snapshot of the rental market. Basically, it involves analyzing the yield data (meaning how much a property takes in), which is often publicly available, and which can in turn clarify if the area is poised for capital growth.

It’s a lot of work, but it’s a real financial indicator – and if you’re lucky, a real estate agent might do a similar calculation on your behalf.

Recognize Gentrification

Gentrification is a term that can be misunderstood, and which certainly spawns some controversy. There are different sides to it, but in the plainest terms, it is essentially the refurbishing of a given neighborhood to adhere to middle or upper-middle-class standards.

Now, there are consequences of gentrification that one can argue harm communities, or which can even be somewhat less than democratic. That, however, is a different discussion.

From a strict investment standpoint, a newly gentrified area, or one about to go through the process, is typically poised to become more attractive to shops, restaurants, and real estate developers – which is to say it’s ripe for investment.

Note Infrastructure & Public Transportation Status

If there are notable infrastructure and public transportation changes happening in an area, there’s a chance that it is soon to be a focal point for investors and business activity.

Simply put, if a city or county is making it easier to get to a certain place, and more pleasant to stay there, the goal is typically to attract business. And often enough, it works.

That doesn’t mean you should trust every rumor about a new public transportation hub revamped parking deck at an old shopping centre. However, projects that are clearly underway can be a good sign of a potentially valuable property investment.

Keep an Eye Out For New Entertainment

New entertainment springing up in a given area can over time attract residents, and can certainly make an existing property more valuable.

Sometimes this is something as simple as a new movie theater or a trendy bar. Or sometimes it can be related to a bigger shift in entertainment.

One timely example in the U.S. could be the impending rise of public sports watching venues and betting places. Overseas the betting industry has existed for some time, and primarily works through websites online. However, there are in-person sportsbooks, and some expect this to effectively become a new form of entertainment as legal betting spreads in the U.S.

It’s one example, but it demonstrates the sort of thing to look out for from an entertainment standpoint.

Know What You Can Do On Your Own

You should also keep in mind which other ideas you might have for the property, such as capital appreciation or investment benefits.

While there’s plenty about a neighborhood that might indicate your property will ultimately be more valuable than it is when you buy it, this will also depend to some extent upon what you can do to enhance the property itself.

A home is not necessarily like a car, which depreciates in value the moment it’s driven for the first time. A home can be a project over time, such that anything from basic upkeep and renovations to attractive landscaping can, at least in theory, boost its value.

So, even as you analyze a given area and real estate market, keep in mind any and all efforts you might make personally to enhance value over time.

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