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I know someone who bought a home for 30k in a bad neighborhood next to a supposedly gentrifying neighborhood where home values are high. She expects her home value to go up a lot in coming years. I'm not buying this because it seems too easy and there has to be a lot of risk or everyone including professional flippers would be buying up these run down homes in anticipation of this future gentrification and appreciation.
It is a lot of risk, and may take years.... But, some people do it. It's like investing in the stock market. She believes things will change, and they may.
I created another thread and there is a brand new house being built near my neighborhood in front of a run down trailer park, very strange, stark contrast. But now, the run down house next to the brand new house, and it is very, very run down and terrible to look at, is for sale by owner!
I know someone who bought a home for 30k in a bad neighborhood next to a supposedly gentrifying neighborhood where home values are high. She expects her home value to go up a lot in coming years. I'm not buying this because it seems too easy and there has to be a lot of risk or everyone including professional flippers would be buying up these run down homes in anticipation of this future gentrification and appreciation.
As long as she can rent the home out in the mean time, it's paying for itself until the value goes up. If it's up and coming and the home is in good enough shape to rent out you have to figure it can be rented out for at least $750 a month even in a not so good area, it depends on the area rents but even $500 a month would pay her something monthly while she speculates and in a few years she can sell it for $40K at worst. I would not buy in the middle of a bad neighborhood, but a block in from a decent area is worth considering. Look at Harlem NY. It's not a bad place anymore, I'm just wondering where all the displaced people went.
gentrification is unpredictable, and even big investing company get screwed up sometime, the key is to make sure you get steady income from the property even if gentrification does not happen. I've seem few area talking about gentrification for over 8 years and still not happen, or not yet.
rental income is like salary, and gentrification is like bonus, one helps you keep your life together, and another makes you richer.
As long as she can rent the home out in the mean time, it's paying for itself until the value goes up. If it's up and coming and the home is in good enough shape to rent out you have to figure it can be rented out for at least $750 a month even in a not so good area, it depends on the area rents but even $500 a month would pay her something monthly while she speculates and in a few years she can sell it for $40K at worst. I would not buy in the middle of a bad neighborhood, but a block in from a decent area is worth considering. Look at Harlem NY. It's not a bad place anymore, I'm just wondering where all the displaced people went.
LOL good luck with Harlem, an abandoned town home there cost north of 3 million.
Here's the thing, by the time a neighborhood is pretty certain to gentrify, much of the appreciation has already been seen.
I'm in Chicago so there's a neighborhood called Pilsen that's great proximity to expressways, very close to the loop and downtown. Its no longer really dangerous, but still far from being super desirable and prices are already 300k and up for a condo.
There's another neighborhood called logan square that people have been saying is on the upswing for the past 25 years. It seems to have finally just now happenned.
Buying in a gentrifying area is probably going to be a 10 year process, not something that's going to happen over 2-3 years.
Sometimes a particular area just gets hot. My folks moved to Charleston SC about 7 years ago, i told them to buy a place there even though they were only going to be there for 3-5 years. They wound up staying about 6. In the time they were there a co-worker of my fathers bought a home in mount pleasant for something like 200k, just sold it less than 6 years later for 500k. Charleston is a super hot market, especially the islands or areas they were on.
Here would be my strategy, if you would live in an area or buy to rent in an area and were happy with the situation regardless of any appreciation of the property, and that is just an added bonus great, but I personally wouldn't buy with the sole intention of that area goign up in value.
With gentrification sometimes its a complete roll of the dice that sets an area up for appreciation. Maybe you buy a house in an "up and comming" area on the south side of Chicago adn then Amazon decides to open a warehouse on the west side and now all the sudden that's the hot area to be in because of jobs, can totally throw off the trajectory of what area is the hot new area
The issue is really dependent on a whole bunch of factors that are hard / impossible to know without actually being VERY involved in the local scene. From factors regarding school attendance boundaries to access to transit to data surrounding the reporting of various kinds of criminal activity (including things like gang related drug selling and presence of halfway houses for released convicts and/or sexual predators...) the "micro location" can mean hundreds of thousands in value.
The broader concerns, regarding "carry costs" that include the current property taxes, utilities, insurance rates, and financing on the property, all make this a very complicated sort of decision and frankly one that is less about "investing" for any expected return than a "gamble" or speculation that there will be some potential for profit.
It frankly makes more sense to find a run-down / undersized home in an area that already has a good history of quality schools and price stability. Get a loan that allows you to include the renovation costs if you need to do that -- https://www.hud.gov/program_offices/housing/sfh/203k . Fix the place up and either rent it out or stage it for buyers that will be happy to move into a nice home in a nice area!
I sort of did that with the purchase of my house. I purchased an REO in an area of the DC metro area that is often looked down on because of the not so great school system and demographics but one of the last affordable areas close to the city with excellent transportation options.
I did the 203k loan and did a gut job and it has so far paid off. I recently had my house re-appraised and it went up 20% value since the 2 1/2 years I have been living here. The area is changing for the better with young families moving in along with new developments including a Whole Foods which I believe will continue to make prices rise.
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