If you want to be successful in real estate investing, one of the best things you can do is find emerging neighborhoods to invest in. However, it's not always clear which neighborhoods qualify as emerging, or whether their positive trends are going to continue indefinitely in the future.
What strategies can you use to identify the most promising neighborhoods for real estate investment? And how can you incorporate them into your broader strategy?
What Is an Emerging Neighborhood?
An emerging neighborhood is a neighborhood that is coming into its own. Exact definitions vary, but emerging neighborhoods are typically ones with increasing population sizes, new construction and other investments, and promising momentum in the direction of growth.
This is valuable for real estate investors for a few reasons. For starters, because the neighborhood isn't established yet, property prices are typically low for the area – and there are plenty of opportunities for investment. You can purchase an existing property at a significant discount or invest in new construction in an open lot that's otherwise going unattended. Additionally, because the neighborhood hasn't attracted tons of attention yet, you probably won't experience much competition from other buyers.
Emerging neighborhoods are also attractive because of their propensity for future development. These are neighborhoods with increasing job opportunities, increasing populations, and increasing popularity that should support continued price increase momentum for the foreseeable future. This typically results in fewer vacancies, greater rental income, and of course, property appreciation over the years.
A combination of these effects means that if you can sniff out the right emerging neighborhoods, you can see a much higher return on your investment than a comparable real estate investor who exclusively considers established neighborhoods.
Hallmarks of Emerging Neighborhoods
These are some of the most promising hallmarks of emerging neighborhoods to look for:
• New construction or updates. If there are lots of people building in this area, or if there are new developments sprouting up left and right, there's probably a good reason for it. It either means that other real estate investors have already started drooling over this neighborhood or that there are significant financial advantages to investing at this time. Either way, this signal should catch your interest.
• Increasing population. Emerging neighborhoods are growing in terms of population, so look for relatively small neighborhoods that have experienced significant growth in the last few years. Recent past population growth isn't necessarily indicative of future population growth, but it can help you discover some neighborhoods in the early stages of developing their momentum.
• Job opportunities. Employment and population have a positively correlated relationship. If you notice that a particular neighborhood is growing in terms of employers and job prospects, it's reasonable to suspect that it's going to grow in terms of population and real estate as well. Are there any major employers who have moved here in the recent past?
• New cultural hotspots. Pay close attention to emerging cultural hotspots as well, as the cultural attractiveness of a city typically predicts population growth. Is this a place with lots of musicians, artists, and restaurateurs? Are there new restaurants, stores, gyms, and other establishments popping up regularly? Do people consider this district to be hip and artsy, or could it get to that level in the near future?
• Areas of outgrowth. Emerging neighborhoods are also promising if they exist as an outgrowth of another, more popular area. For example, if you live in a very popular, growing city, and you notice a suburb or neighborhood on the outskirts of that city exploding in growth, it could be a positive sign that warrants investment.
• Short-term rental growth. You should also pay close attention to the short-term rental market, as it shares a unique relationship with the broader housing market. Areas with explosive growth in the short-term rental market are typically well-poised for growth in the broader market. This isn't a guarantee, but it is a positive signal to watch for.
• Relatively low prices and competition. In combination with the other factors above, if you notice relatively low prices and minimal competition from other buyers, it's a clear sign that you should consider moving forward. If you find the right opportunity at the right price, you should feel confident making an offer.
The Importance of Due Diligence
It's not always easy to tell what counts as an emerging neighborhood and what doesn't – and it's not always easy to tell which emerging neighborhoods will continue their growth into the future. However, if you're willing to invest proactively in your due diligence, and you apply a consistent set of standards to all the properties you consider, you'll be in a much better position to make a large profit.
