Scouting Boom Neighborhoods Before They Hatch: Increase Your Equity

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Equity is great, and every homeowner wants more of it. This is the value of the home that you own, minus any remaining loan payments you owe. So if you have a $250,000 home and owe $50,000, you have equity of $200,000. Most homeowners don’t start out with very much equity, needing financial assistance to pay for the home. But what if there was a way to accelerate the amount of equity you hold in just a few years, instead of 30?

This is why being a “pioneer,” someone who moves into a neighborhood before it booms, is so valuable. When neighborhoods become popular or trendy, housing prices go up dramatically. If you bought a home for $250,000 and its value is driven up to $350,000, that’s essentially an extra $100,000 in your pocket if you sell the home. An extra $100,000 that didn’t cost you anything at the start.

Granted, most people move to a hip area after property values have gone up. The trick is identifying what area is about to boom, and beating everyone else to the punch. Here are a few factors to consider when scouting neighborhoods. If you spot several of these factors in play, it may be time to make a move.

Development is Already Happening

This is the easiest way to tell if a neighborhood is on the up-and-up, although very often you’ll need to spot these developments very early. You won’t be able to get a home cheaply after the fashionable condominium project is complete—you’ll need to get to work as soon as you hear about plans to break ground.

Everyone knows that certain brands and stores also come on a wave of rising housing costs. Starbucks is the most famous of these—its team does loads of research before every location is installed. But again, it may be too late to beat the rush if a Starbucks is already on the ground. One slightly less flashy indicator would be the construction of a Target; A RealtyTrac study found that housing prices increased 27 percent after a Target addition.

The Geography is Right…

One of the easiest ways to predict where the next booming neighborhood will be is to just look next door. Like a fondue fountain, when one area fills up, the excess spills over into the nearest container.

The best place to look is neighborhoods right on the edge of a downtown area, or on the cusp of a neighborhood that’s been booming for a few years now. Many buyers will be looking to be as near to these areas as possible, but popularity will decrease the availability of homes so they’ll turn to the next best thing.

If a city has had a few economic “up” years in a row after a period of stasis, consider looking nearby before those properties become a must-have.

Miami has seen real estate prices rising in recent history.

Miami has seen real estate prices rising in recent history.

Keep an Eye on The Numbers

If the newspaper writes that “Neighborhood X is the place to be,” then that makes it easier for you. But it’s also too late. You need to use the same indicators that builders and developers use to determine if a neighborhood is primed for popularity.

Two of the most important statistics for indicating upward momentum is the crime rate and days-on-market. The first is obvious: If the crime rate has been decreasing steadily for a few years, that means the area is safer and more attractive for wealthier buyers. The second terms refers to the average time that a home spends on the market before it’s bought. The lower the average, the quicker the properties are being snapped up by eager buyers. Look at these stats over a period of months and years and identify a legitimate trend. Eat before the food gets too hot to handle.

School District Borders

You’ve heard it a million times: Location is everything. This is true, but they aren’t talking about ocean overlooks or pretty scenery. In fact, more often than not, they’re talking about school districts. Few items drive up the value of a home than being placed in a good school district.

If you keep an eye on the changing definitions of school districts, which often change slightly every few years, then you can strike when the iron is hot. Grab a home that was previously located in a lesser school district before the real estate market knows any better. This guarantees that your children will have access to better education, and even if you don’t have kids, it will guarantee a higher valuation on your home.

Historic Factors

This is a method for those who aren’t worried about waiting a long time for their homes to spike in value—perhaps those who plan on living out their 30-year mortgage and selling. Homes with historic factors can offer big payouts…when the community comes around to it.

There have been a number of architectural trends that have played out in American history—from Spanish to Victorian, to ‘50s Moderns—and all have fallen out of fashion at some point. The good news is that new generations often fall in love with the retro looks once again, years later, in the face of modern styles. If you can keep your historic home well maintained, it can pay dividends.