How did Salim get so lucky? He was the beneficiary of a residential housing phenomenon known as gentrification.
In layman's terms gentrification is when yuppies with money discover an older neighborhood that is a bit run down but has solid houses and they start buying those houses and fixing them up (the right way). Like Salim, they buy the houses for a couple of hundred thousand and when they are done fixing them up they have homes worth a half-million or more.
For those of us who live in the Charlotte, NC think... NoDa (aka North Davidson Avenue near uptown).
Often these homes were built in the early 1900's. They are still structurally very sound, but they need updating in almost every way you can think of. A typical developer will take a 1,200 square foot home and by raising the roof (literally) turn it into a 2,100 square foot home worth three or four times what s/he bought it for.
My business partner and I bought this house is a nice up-and-coming neighborhood in Salisbury, NC. Because the area is still not quite hot, we upgraded it from a 2 bed 1 bath to a 3 bed 2 bath home, but left the granite countertops for the next owner. We did put in a nice new kitchen, 2 new bathrooms, all new wiring and plumbing, and moved the laundry hookups from the kitchen to the basement. Click on the link http://202heiligave.2seeit.com/ to see more.
But, if you just go looking for an old home to fix up and hope to make a killing, you may be disappointed. As everyone in real estate knows, the three most important things are 1) location, 2) location and 3) location.
If you buy in the wrong neighborhood, you will end up with a house that is a really gem, set in the snout of a pig of an area. It won't sell for what you have in it, and after all that expensive fix up, you won't want to rent it out to someone who may punch holes in the walls, or put scorching hot pans on top of that nice polished granite countertop.
So, how can you know if the neighborhood is getting or about to get hot?
The Wall Street Journal recently published an article on just this topic. They highlighted the story of Salim and tell you the indicators that a neighborhood in about to take off.
http://online.wsj.com/news/articles/SB10001424052702303914304579193923938184500?KEYWORDS=hot+neighborhood
You can use the link to look at the whole article, or just check out the key points I pulled out...
- Check out the nearby neighborhoods. Are some of them already gentrified, or in the process? Often times you can get the best deals buying in the path of progress.
- Check out the local retail scene. Does the neighborhood store sell wine by the gallon, or do they have some upscale offerings. They won't stock it if it isn't selling. And if more expensive wines are selling, that is a sign the upscale buyers are already living in the area and starting the gentrification process.
- How sound are the houses? They likely are neglected, but are they falling down or just abused. One Brooklyn entrepreneur bought a 5,000 square foot, five story brownstone that had previously been split up into single rooms, occupied mostly by drug users. But the house was located in an Historic District and was surrounded by other big, beautiful, but neglected homes. The developer bought the house for $1 million and it is now worth $4 million.
- Look for renovation, construction, and government investments in infrastructure in the area. Those are legs the neighborhood needs to keep standing and they indicate that banks, government and homeowners see the area as a sound investment.
- Look at the numbers...
- What is the employment/unemployment in the area and which direction is it headed?
- Is the average home price in the area below the city average and trending up?
- What is the percentage of rentals and which direction is that headed?
- What is the rent rates compared to home prices? Is it stable? If the home price is too high relative to rents, you may be looking at a local bubble from speculators.
"Gentrification is back in a big way, with all its opportunity and risk."
Take note that the author of the Wall Street Journal article mentions both opportunity and risk. You don't have one without the other. The best way to maximize the opportunity while minimizing the risk is to work with people who know the area and know the business.
If you are looking to take advantage of gentrification opportunities in Cabarrus or Rowan counties, my business partner Bob Yon at New Dream Home Solutions can help (http://newdreamhomesolutions.com/).
If you want to dive into the Mecklenburg County (Charlotte) market, send me an email (Tom@CharlotteWealthPartners.com) and I will put you in contact with folks I know who have their finger on the pulse of the market in various parts of Charlotte.
Tom Sheppard is the author of "Millionaire Liars: What Real Estate Gurus Won't Tell You (but Tom will), available in paperback and as an ebook.
The Home Finders blog was created by ADB Properties and The Gold Seal Homes Group to provide a resource for people in the greater Charlotte, NC area to find peace of mind through quality, affordable homes. This blog features properties that are currently available to rent or buy from affiliates of The Gold Seal Homes Group (www.GoldSealHomesGroup.com). All affiliates of The Gold Seal Homes Group agree to abide by high ethical standards and certain operating procedures that make it easy for people to do business with all affiliates.
