How to Know If a Neighborhood Is Gentrifying

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By Donna Fuscaldo

Bargains may be few and far between in the current real estate market, but buyers can get a deal if they are willing to purchase a home in an up-and-coming neighborhood. But discovering a neighborhood with potential can be tricky.

"When you buy in an up-and-coming neighborhood, you are able to get in on the ground floor of appreciation," says Michael Corbett, real estate and lifestyle expert for real estate website Trulia. "You really want to look for neighborhoods where you can increase the value; the best way to do that is in transitional neighborhoods on the rise."

But like all investments, buying in a developing neighborhood comes with risks. After all, getting a bargain on a home only becomes an investment if the neighborhood continues to develop and home prices appreciate. Real estate experts offer the following signs homebuyers should be aware of when evaluating emerging neighborhoods:

Development Is Already Happening: Construction activity, whether it's retail, condominiums or residential homes, is a good sign of an area about to boom. "If you start to see large-scale development in certain areas, that's a harbinger of progress and transition," says Corbett. On a smaller scale, the big tip...is look for Starbucks going in." She says the coffee giant spends a lot of money on market research to determine new locations.

Trendy Establishments Are Popping Up: Development doesn't have to be going at all hours of the night for a neighborhood to qualify as a potential hot spot, but the quality of the new retailers and restaurants are important. They don't need to be the most expensive, but if they are concepts [wine bars, juice bars, organic or farm-to-table restaurants] that mimic those in flourishing neighborhoods, there is a good chance the neighborhood is on the rise," says Doug Breaker, president and CEO of HomeFinder.com.

The Neighborhood Is on the Cusp of a Metropolitan Area: Many homebuyers get priced out of metropolitan areas and will look for adjoining neighborhoods that are close to cities' amenities, but are considerably cheaper. Experts say this move is a great way to get in a neighborhood before it becomes overpriced. Corbett points to Miami as an example. That city started to rebound and is now very expensive. But just outside of Miami in Hollywood, Fla., homebuyers can get a home for a smaller price tag but still enjoy the perks of living near a major city.

Public transportation is also a big driver of growth in adjacent neighborhoods, adds Breaker. "If there is not an easy way for residents to commute, it will be difficult for the neighborhood to succeed," he says.

City Development Projects and Lower Crime Rates: One of the biggest signs that a neighborhood is on the rise is when crime is on the decline. "If the neighborhood is seeing increased crime it's not ready to transition yet," says Corbett. Many websites track neighborhood crime statistics, so look for improving stats to find hints of emerging areas.

In addition to declining crime rates, experts point to city development projects as a sign a neighborhood is in turnaround mode. City building efforts like gardens, fountains and public building façade projects are all good signs, says Breaker. "If the city is investing in projects that will contribute to the growth of the neighborhood... they are most likely preparing the neighborhood for a turnaround," he says.

For Sale Signs Are Going Up: Unkempt houses and boarded up windows are big red flags to buyers, nut if you can spot a couple of houses popping up that looked like they have been renovated (or flipped) it's a good indicator the neighborhood is set to grow. "If you see one or two houses that look like they've been redone spring up, it's a sign people are starting to come in and gentrify," says Corbett. "It's a great time to jump on the bandwagon."

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