Benefits and Drawbacks of Buying a Home in a Transitional Neighborhood

By: , Contributor

Published on: Dec 27, 2019

Should you choose a neighborhood that's up and coming? Here's what you need to consider in your decision.

If you're looking to buy a home, whether to live in yourself or as an investment, you may be tempted to look at the most highly rated neighborhoods in your neck of the woods -- areas with solid amenities like parks, transportation, and shopping, coupled with great schools. But before you commit to buying a home in the priciest neighborhood you can afford, it could pay to explore your options for buying a home in a transitional neighborhood -- one that's not too established but is clearly up and coming. Here are a few benefits -- and drawbacks -- of going that route.

Pros of buying in a transitional neighborhood

The primary perk of buying in a transitional neighborhood? You'll pay less for a home than you would for a comparable one in a more desirable area. That could benefit you if you're looking to live in that home yourself but are on a tight homebuying budget, or if you're looking to buy a home as an investment property, rent it out for a few years, and then sell it once its value climbs.

When you pay less for a home because you're settling for a transitional neighborhood, you get more wiggle room in your budget to spend your money on renovations. As such, you might really end up with your dream home. And if you wind up selling that home after it's been updated, you might really turn a solid profit once your neighborhood evolves from transitional to desirable.

Finally, the beauty of buying in a transitional neighborhood is the opportunity to be pleasantly surprised at how nicely it evolves. Vacant storefronts the month you buy could, a year later, be themed cafes or farm-to-table restaurants. Having those amenities so close by may not be within your reach in a more expensive neighborhood.

Cons of buying in a transitional neighborhood

While buying a home in a transitional neighborhood could result in serious savings on its purchase price, the flip side is that it may be harder to predict whether your home will increase in value over time or decrease, as much of that will hinge on how the neighborhood itself changes with time. That's a risk you may not want to take, whether you're buying that home to live in or are planning to use it as an investment. And also, you’ll need to pay attention to crime rates; AreaVibes.com is a good resource for that.

Furthermore, if you are going the investment property route, you may find that attracting tenants is difficult if the neighborhood is at all questionable. That could, in turn, put you in a tough financial position (though it's worth noting that if you pay less for your home, you'll have the option to charge less rent, which could help ensure a steady flow of cash from tenants).

Also, if you're planning to live in the home you buy, and the neighborhood is iffy, you could wind up unhappy with your choice if you have children whose schooling is negatively impacted. Though it's certainly possible to get a good education in a transitional neighborhood, you must entertain the possibility that the schools may not be quite as well funded as you'd like. As such, you may need to factor the cost of private education into your budget, which could negate much of the savings you reap by paying less for your home in the first place. To know what sort of education experience you’ll have in store, do some research. Sites like SchoolDigger.com and Niche.com let you access school data and rankings by zip code.

Finally, if the neighborhood in question hasn’t yet been built up, you may find that you’re lacking basic amenities like grocery stores and pharmacies. Driving a longer distance to access them could prove to be a hassle, and can also add to your non-housing costs.

What's the right move for you?

Owning a home in a transitional neighborhood isn't for everyone. If you're up for it, make sure to thoroughly research that locale before committing. Specifically:

  • See how long storefronts have been vacant
  • See how construction projects are progressing
  • Talk to real estate agents who know the area and can offer insight on how it is evolving

If the neighborhood you’re looking at is in the early stages of transitioning, it could take some time for your home value to increase. But if you get in at just the right time, you might manage to score a great deal on a home before the real estate market starts booming, at which point you'll have the option to live in that home and enjoy your neighborhood or sell and walk away with a very respectable profit.

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