Real Estate Risks: How To Tell If You Are Buying In An Up-And-Coming Neighborhood

One of the best way to make sure your new home purchase ends up being an investment instead of a flop is the location. Logic tells you to always buy in a great neighborhood, because it'll be easier to sell your house down the road. However, those on more limited budgets have to do more research -- they don't want to end up with a "dead end" home, but they can't afford the pricier, already-great neighborhoods. The answer is an up-and-coming community before it's popular. So how do you tell a deal from a dud?

1. Decreasing days on the market. 

When you're looking at homes for sale in a potential neighborhood, look at the recently sold homes as well. In general, if the days on the market for each property before it was sold trend downwards (properties sat for 90 days, then 60 days, then 40 days), this is an excellent sign that the neighborhood is trending upwards in popularity. 

2. Increased building permits.

Take a trip down to the city permit office to ask about the specifics of permits granted in the city. If it seems like there are plenty of renovations happening in the area, this means the neighborhood is gradually being resurfaced and revitalized. Renovations and building improvements almost always mean that a neighborhood is worth investing in. 

3. The neighborhood is bad but convenient.

Modern day home buyers and renters have different criteria for homes than buyers-gone-by. For example, millennial home buyers are more interested in history, access to public transit, and character in a home. A run-down apartment above a coffee shop or drugstore would have been passed over by buyers of older generations, but newer buyers like the urban, rustic feel of commercial living areas. Check the amenities offered in close proximity of the potential purchase -- areas close to schools, parks, or downtown businesses are almost always worthwhile even if the neighborhood is less than ideal.

4. Migrating businesses.

Businesses move to up-and-coming areas before home buyers do. Check the area to see which businesses have opened in the area. Small businesses are particularly indicative of upward trends, as they generally have higher prices and smaller clientele. Poor neighborhoods with crime and poverty are not able to support the needs of many small businesses. Specialized restaurants, coffee shops, and boutiques means the neighborhood will soon be getting a facelift with more wealthy and diversified buyers. 

5. Historic atmosphere.

The buying market is starting to trend towards homes with a history. Shows like "Fixer Upper" and "The Property Brothers" show young buyers the potential of historic properties. Many more people are willing to buy historic homes for the charm, location, and individuality, instead of moving to suburbs with a new house and large yard. Therefore, buying in a run-down neighborhood with plenty of unique homes representative of an architectural era will eventually be a worthwhile investment, especially if you are willing to rehab the home to modern standards while preserving its beautiful history. 

6. Plenty of young energy.

Young buyers often cannot afford pricier, trendy neighborhoods, so they move where they can afford. Businesses follow their young patrons (restaurants and cafes are especially typical). Ask your real estate agent to research the demographics of where you are buying. If more young people have been moving there within the past few years, the value of the neighborhood is often just on the cusp of sky-rocketing.

Finding the "diamond" neighborhood in the rough can be a challenge. With the help of a local real estate agency, you'll be able to make one of the smartest real estate decisions of your life.