Making the most of your limited capital by buying properties and selling them at a higher price is a well-known real estate strategy. However, the major barrier to applying this plan is often the high entry cost of purchasing a property in a well-established market. These houses often come at premium prices, and although profit is guaranteed, the margins are typically small.
On the other side, investing in homes that are set to experience massive growth in social amenities and home value is essentially like buying the dip. This article elaborates on the why and how of choosing up-and-coming neighborhoods for real estate investment, so stick around till the end.
Why Choose Up-and-Coming Neighborhoods?
Potential for Appreciation
Getting into an upcoming neighborhood early earns you a greater return on your money than buying into an already saturated market. In most instances, the property value in well-established areas has peaked, leaving little room for investors to turn a large profit. In comparison, areas that are expanding rapidly with new businesses, infrastructure, and housing are bound for an upward trajectory. That means their savvy property owners will likely see substantial appreciation in a short time. Consult with a local rental manager in San Antonio Texas, if you still have questions about the possible benefits you’ll gain from investing in an up-and-coming neighborhood.
Lower Entry Costs
Another benefit of choosing up-and-coming neighborhoods is that the price tag is rarely a barrier to buy-in. Even with an 80% LTV loan, purchasing a house in an area where properties are worth millions can still be a burdensome undertaking. On the other side, properties in less-established neighborhoods come at a fraction of the cost, giving you room to finance a buy-in with ease. Some investors even use the opportunity to purchase multiple properties at once, as a way to build a robust and profitable real estate portfolio.
Higher Rental Yields
Earn more as a landlord by buying a rental property in an upcoming neighborhood. After all, lower purchase prices combined with increasing demand can lead to better rental income relative to investment. As neighborhoods transition, they often attract a new wave of residents, young professionals, artists, and families, who are drawn to more affordable housing options. In the long run, this strategy can boost your cash flow. The increased demand for rentals can lead to higher rental yields, providing investors with a steady and often lucrative cash flow while they wait for the property’s value to appreciate.
Investment Strategies for Up-and-Coming Areas
Buy-and-Hold
One of the most popular investment strategies for up-and-coming areas is to buy and hold. This strategy is typically long-term and requires a lot of patience, because you’re purchasing a property and holding onto it for an extended period, typically several years or even decades. The idea is that over time, as the area becomes more developed and desirable, you can leverage the growth for a massive payday when you decide to sell. As a result, this strategy is more suited to investors who are looking for stable, long-term wealth building and are less interested in a quick profit.
Renovation and Flip
If you’re looking to get in and out quickly, your next best bet is a short-term fix and flip. By nature, this strategy involves purchasing a distressed or undervalued property, making strategic renovations and improvements to increase the property value, and then selling it quickly for a profit. In upcoming areas, the potential output is multiplied because you can purchase fixer-uppers at a much larger discount. However, remember to research states known for a good rate of flipped homes to make a reliable choice of a lender.
Rental Property
Become a landlord in an upcoming neighborhood to earn monthly income on your investment. This option is often an extension of the buy-and-hold strategy, but instead of leaving the property untouched, investors make the house habitable so they can attract tenants. While this approach requires more active participation than simply letting the property appreciate, it also means you enjoy more overall returns, especially if you outsource most of the management to a capable property manager. Besides, the money you earn as rental income can go towards paying off your mortgage, so you’re debt-free when it’s time to sell and cash in.
Conclusion
Investing in up-and-coming neighborhoods offers a smart way to enter the market with limited risk and nearly guaranteed returns. After all, these areas often provide higher rental and sales yields in comparison to their cost price. They also have the benefit of long-term appreciation, where properties in more established neighborhoods might have appreciated.
Depending on your real estate goals, you may opt for a long-term strategy, such as buy-and-hold, or earn money actively through flipping or rentals. The key is to act early, research thoroughly, and stay alert to the signs of a neighborhood on the rise.