This is a question that isn’t easily answered as no one can predict the future. It’s also something we get asked on a daily basis. The truth of a matter is real estate is very much a living matter. It evolves and changes over time. Sometimes something that was amazing 10 years ago is now seen as a bit dull or overrated, and likewise an area that people avoided at all costs suddenly transformed into the next big thing.
We’ve seen this happen in areas all over the world, with London and the UK being prime examples. As a good reminder, who in their right mind would have wanted to live in Clapham or Brixton 15 years ago, but now they have some of the trendiest postcodes in London. It just goes to show how much can change, but the question really is… how do we find that next up-and-coming area?
The answer is, no one really knows. Not truly. Not until it has already started becoming a desirable area, in which case you’ve already lost the best growth profits as an investor. The true trick is to learn to spot the trends that help in determining if an area is up-and-coming. If you know the top 5 things to keep an eye on, chances are you will learn to spot diamonds in the rough yourself. So what are the main things to look for?
I bet some of you were surprised about this one! You would naturally think that youth means binge drinking, noisy parties, and dirty streets… Well it can be that too, but the other side is something to pay much more attention to.
Age demographic plays a crucial part in determining the areas which will see the most growth. Places that have a high population of younger people in their twenties and thirties will inevitably experience house price growth in a relatively short space of time.
Why? Because young people are often priced out of established neighbourhoods, which is why they often lead the way to a neglected neighbourhood’s resurgence. Young professionals will also look for things near to local retailers and transport links, which in turn encourages more local business owners to the area.
Consequently, once they move in, restaurants and bars often follow. You will be able to see areas morph into small urban villages in response to heightened demand from younger people with disposable income.
This makes a little bit more sense if you think about it logically. When businesses settle in an area, there are usually many reasons as to why. Especially if they are big companies! They definitely do their own research into areas, salaries, demand vs. supply, transport, etc.
When a co-working space, a Whole Foods, or a fancy independent coffee shop moves into the neighbourhood, it’s more often than not a positive sign that the neighbourhood is changing. This is just as true for small boutiques and specialty stores as it is for large businesses that sell the basics with flair.
In fact, like we already stated, most established businesses do a fair amount of financial research and projections before moving into an area. Watching industry moves can be a great way to spot emerging areas with strong fundamentals.
3. Renovations & Regenerations
This might be something obvious, but many people somehow seem to overlook it. Or worse yet, think that because an area is being regenerated it must be bad. Well, sometimes this has truth, but in historic cases it can pretty easily be said this isn’t the case once the regeneration is complete. Basically, if you see a town, province, city, or local council area strongly start to renovate and regenerate then chances are in the years to follow prices will rise.
Big cities usually have warehouses and parks that are neglected. If the city decides to clean up an area, such as a waterfront, large park, Brownfield site, or warehouse, this is a sign that the neighbourhood might be on its way up.
If the city is willing to invest its money into an area, then others will follow. And you are almost assured that the area will be kept an eye on. I mean, why would they spend millions of pounds on something only to see it deteriorate?
Aspen Woolf Tip: You can head to town meetings to find out where the next big projects are. Also, look for houses that are being remodelled or areas where a lot of houses seem to be going through a transformation. It’s a sign that homeowners are invested in their own community, and property values will increase thanks to the renovations.
What on earth is DOM you might ask? It simply means ‘Days on Market’ and is what real estate insiders refer to as “DOM” for short. In more measurable terms, it is how long a property has been up for sale, which is a fantastic indicator into any neighbourhood’s housing market.
The best way to get a sense of whether an area is on the up or down is by looking at the DOM. One thing we do on a regular basis and something you can easily do yourself at home too. Just look at listings of comparable homes for sale in the area you are interested in. If they’ve all been sitting on the market for 120 days, that’s not a good sign. But if most seem to be up for 10 days or less, that’s a pretty tell tale sign of a hood heating-up.
From a budget perspective, these numbers can be especially important. Our own head of property investment said “seeing a decline in the DOM, or in other words a decline in the number of days a property is on the market, can happen way before prices themselves start to rise”. This means that keeping your eye out on the DOM stats can help you invest in the area you want while it is still affordable.
Aspen Woolf Example: We talked to one of our staff members (Audrey) that we remember having a story about an investment she purchased a while ago. She had purchased a cute, homely property as an investment over 10 years ago in a less than ideal street. She then put it up for sale to see if she could flip it. The location was its downfall, and the property just lagged on the market as a result.
However a few years later millennia’s looking to buy their first home were clamouring over the precise location of the house. It now had an urban feel, trendy hot spots sprouted up, and it’s conveniently close to new transport.
The homes that had a DOM of over 90 days in this precise area slowly started to sell in 45 days, then eventually they were on the market for only a couple of weeks. She too noticed that the general decline in the number of days on market (DOM) occurred much before the home prices themselves increased.
Lesson Learned: So the lesson we learned through Audrey? A slow, steady decrease in DOM is a smart, early sign that a neighbourhood might be on the verge of up-and-coming status. And what did Audrey learn? That if the DOM is decreasing and you aren’t in a hurry to sell… then maybe you should hold on to the property a bit longer to see increasing property prices start to match the decreasing DOM. And by default maximise your profit! You can also ask your agent to help clue you in as to where those areas might be. Most good agents will have kept an eye on this measurement!
It’s quite easy to see why transportation might push up property prices. Convenience is always something that people are willing to pay for. It has many added advantages like bringing in more commuters, more job opportunities, and more ease.
Research released by Zoopla found that property within a five minute walk of a tube station can be up to 21 per cent (or some £80,000!) more expensive than a similar property half an hour away. Now I don’t know about you, but for me that makes a huge difference!
In short, transportation is one of the biggest factors that draws in buyers and renters of any age. Good links to transportation automatically add value to the price tag of a property. Look for areas that have plans to improve local transport. If you have the time then you can get information from your local council for example.
Wherever you decide to invest, make sure you get in early. Once a ‘hotspot’ leaks out, sheep will follow and the profit margin will shrink rapidly. Take a look at Stratford in London for example. It used to be a place no one would think twice of. But after it was announced as being the central point for the Olympics in 2012- the people that got in early won’t need to worry about their pension- and those that want to get in now are running a risk of losing their pension.
Aspen Woolf Tip: Take a look at The Royal Docks in London and look at the cross rail that is being built as we speak. Don’t think you can jump in after it is complete and then reap the rewards. Most likely the same thing will happen as happened in Stratford. Get in now while there is room for that capital appreciation to happen. You can also keep your eye on the other stops planned in for the cross rail. No doubt all these areas will see a rise in property prices once complete.
BONUS: The Coffee Chain Factor
And just because we wanted to, we decided to add in a little bonus factor for all our readers. It’s what we like to call “The Coffee Chain Factor”. It can either work in your favour if you bought earlier, or it can work against you if you are looking to buy in an area. Let us explain.
If there is a strong coffee chain shop presence, such as the likes of Costa or Starbucks (mmm, pumpkin spice latte), then it is probably a good indication that the area is best to be avoided. Not because it ISN’T desirable, but because the coffee chain has seen the area is starting to boom and decided to sit one of their shops there to profit from the trade available. Believe us when we say that these big organisations don’t just plop their shops anywhere without first making sure there is money to be made there.
The rule of thumb that we like to go by is “if chain coffee shops or retailers start to pop-up in the area, then it is likely to have reached its growth potential.” Or at very least the largest growth potential has already happened.
But likewise, if you have already bought in an area before “The Coffee Chain Factor” and only later experience the phenomenon, then you can take it as a positive sign that the area is indeed going through growth. Cha-ching!
And The Final Sprinkle
Wherever you decide to invest, make sure you get in early. Once a ‘hotspot’ leaks out, the sheep will follow and the profit margin will shrink faster than the foam on top of your extra dry cappuccino. Keep in mind that buying in an up-and-coming neighbourhood takes long-term vision. It can take a decade, or more, for prices and reputation to change. And, there’s no guarantee that they actually will. A change in zoning laws, or migration elsewhere, can easily stall development in a big way.
However, by sharing our tips on spotting an up-and-coming area we hope to leave you in a better understanding of some telltale signs that show an area just might be the next big thing. Keep your eyes open and you’ll be surprised to what you’ll start noticing. And if you’re reading this and sipping your delicious cup of your extra-hot, skinny, double-shot, sugar-free, vanilla latte, just think of our Coffee Chain Factor and what it might mean to your area of choice!
Think you found just the right property to invest already? Then check out our 5 Key Points to Stress Free Property Investing before taking the next big step!