One way to identify a potential investment location which is on the precipice of rapid value increase is to understand where gentrification has recently started.
Gentrification is “a process of renovation and revival of deteriorated urban neighborhoods by means of influx of more affluent residents” and can be an excellent signal for investment opportunities.
One must only look at places where former “rough and tumble” neighborhoods have emerged as valuable investment locations—Brooklyn and Oakland come to mind as early examples—to understand that this process has many signals which, to the discerning investor, can lead to very profitable investments.
According to Governing Magazine’s editors, the neighborhoods that have now been gentrified, are the ones where the number of college-educated residents and home values have increased at a rate that’s in the top third percentile of the city.
As consumer preferences change, the linkages between commercial real estate and residential are becoming more manifest. The increased desirability of urban villages, mixed use buildings, and the general move back into city centers has caused a shift in development planning and implementation.
Often, in a location that is undergoing gentrification, you’ll see a short supply of homes on the market and at first, limited new construction. So, what are some signs that gentrification is in its nascent stage?
They’re close to high end or “nice” neighborhoods
Examples of the gentrification phenomenon can be found in many rapidly growing cities. Neighborhoods such as Seattle’s Rainier Beach, San Francisco’s Mission District, South Boston or “Southie”, or Washington DC’s Anacostia, Deanwood and Columbia Heights are all changing as new, more affluent residents are moving in and demanding new services and updated buildings.
In many cases, these areas are adjacent to wealthy or long standing “desirable” neighborhoods and the spillover demand is driving growth in the area. Look for rezoning, as this is the clearest indication of increasing population. In addition, places that are being rezoned will often have more flexible zoning or “floating zones” and planned development districts, which are alternatives to traditional zoning and give municipalities and developers greater flexibility by emphasizing general goals instead of strict regulatory requirements.
Artist’s call the place home
A thriving arts community is a surefire sign of a “hip” neighborhood. Artists typically choose a life of creativity and vision over a more traditional 9-5, money-centric lifestyle. However, their patrons and the consumers of their art are generally those who have a good aesthetic sense, the means to consume art, and these neighborhoods are generally more affordable.
The character artists bring to an area is a natural precursor to a growing and vibrant neighborhood, and these areas often evolve into prized housing markets. A great place to make investments.
Houses sell quickly
As days on the market (DOM) decrease, you can understand quickly that an area is increasing in value, and potential investment opportunities abound. Implementing your own, or utilizing a 3rd party help to monitor markets can help you identify trends.
As the housing supply dwindles, you can see that demand for retail and other amenities will go up. This would be an opportunity to start working on zoning proposals with your local municipal planning department and to consider adding in mixed use commercial and residential developments.
Retail is on the rise
If you’re noticing a lot of new restaurants, bars, and coffee shops moving into an area, you can see that the identity of the neighborhood is changing. Follow the big players. If Starbucks is setting up shop, you can bet that they’ve done their homework. Major retailers have the resources to identify trends and spend a lot of time examining new areas for stores.
This has also been called the “Starbuck’s Effect.”
Easy access to public transit or arterials
If people can easily get to work, they’re happier to live in a certain area. Whether this means access to public transportation (These are some of the biggest transit projects going on in the US in 2016) or close proximity to new highways or new and improved interchanges, people like to be in a position to get where they need to go quickly.
So keep an eye on your state DOT website and keep abreast of where infrastructure is being planned. People want to live where convenience abounds!
