How to Buy a Home in the Next Hot Neighborhood

In my last blog post, I gave my top four tips for getting a good deal in a great area. It’s tried and true advice for buying a home in an area that doesn’t pose a lot of risk;  places that have withstood economic fluctuations time and time again. But, what about the thrill and potential upside of uncovering the next hot neighborhood? The kind of home that will appreciate at a rate that makes your friends jealous; it’s the clairvoyant choice, where everyone will pat you on the back five years from now for your vision.

To buy a home in such areas can be a great investment choice, from both a cash flow and appreciation perspective, but identifying these areas can be tricky. I can name quite a few neighborhoods that have been labeled “the next hot neighborhood” for twenty plus years, and still haven’t quite seen the expected return.

Follow the Pour Over Coffee

I recently went to Philadelphia for the first time, with no knowledge of the city. I jumped on Yelp, searched for coffee shops, and perused the highest reviewed shops that I had never heard of (i.e. no Starbucks, Peets etc). After I narrowed it down to three or four possibilities, I flipped through the pictures and looked for high ceilings, interiors with reclaimed wood and industrial furniture, offering pour over artisan coffee. Then we went there. And around these cafes we found areas that I would invest in if I lived closer to Philly. There were beautiful run-down brownstones with unlimited potential, and close to downtown. As we sipped our almond milk lattes while seated in Marais metal chairs, a cool breeze wafting in through opened floor-to-ceiling glass doors, my fiancé proclaimed “How do you do this? How do you find these areas?” As silly as this sounds, often the first signs of the revitalization of an area are trendy cafes and bars. When the neighborhood has enough residents to support artisan pour over coffee, it’s a good sign that the area is going to continue to grow and appreciate in value.

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Good Bones are a Must

Neighborhoods with strong architectural quality and character, even if in a dilapidated condition, are a must. Small Craftsmans, Spanish style, Eichlers and brownstones fall into this category, even if on smaller lots. I avoid communities of homes built in the 70s, and 80s (the lost decades of quality construction) as well as any planned communities where every other home looks exactly the same (tract homes), because I don’t feel the quality of construction or timeless appeal is there. I feel so strongly about this, that when looking on Redfin, I advise clients who are looking for an investment property to immediately X-out anything that doesn’t satisfy this rule unless they’ve seen the home in person.

Walk Your Dog at Night

Everyone has a different sensitivity to the safety of a neighborhood. I always tell clients to judge whether they feel comfortable in a neighborhood by whether they would walk their dog alone at night. This is also the yardstick that I follow myself, including for rental properties. The best way to judge this is to do it. Go to the area in question on a Friday or Saturday night, and walk around. I’ve eliminated many a promising area based on this yardstick. Also, I sometimes direct clients to crimereports.com if they want more quantifiable data, but honestly, these types of sites will cause alarm for almost any area, so I consider how you feel there at night to be a better indicator.

Gather Intel

After you’ve pinpointed a few potential areas that match the criteria above, do some research before you make your final decision. Read the local newspaper, talk to people who live in the community, with an eye on gathering intel on planned community upgrades and the strength and financial viability of the local government. We invested in a smaller town in 2010, because it met all of the criteria above, and was in the middle stages of building a light rail system to the city center, which was 45 minutes away. Once that is completed, I expect this area to appreciate even more rapidly than it has to date. Also, if the local government isn’t viable, then there will be no funding for upgrades and projects, including schools, and this will stifle appreciation.

Also, I advise clients to check the ratio of active homes (those on the market) to pending homes (those that have received an offer and are about to go off the market) and recently sold homes on Redfin.com. If there are more than double the amount of pending/sold homes than active homes in the last three months, this is a good indicator that the area is trending towards more rapid appreciation.

Another way to find out if a neighborhood is already hot is to check out Redfin’s annual “Hottest Neighborhoods” report.

Thanks for reading! In my next blog post, I’ll get into the nitty gritty; using market conditions, seasonality and locational handicaps in your favor when purchasing property.

About Mia Simon
Mia is a Bay Area native, who graduated with a bachelor’s degree and juris doctor degree from University of California-Berkeley. She began her career as an associate with a large international law firm. After practicing law for a few years, she made the leap to real estate broker. Mia is currently an area manager with Redfin, helping her teams and clients navigate the fierce real estate market in Silicon Valley. In her spare time, she enjoys hanging out with Ruby, her English bulldog, making green smoothies, and drinking Philz coffee.