Speculation vs. Continued Appreciation?

Question

I'm in Nashville, TN, a pretty competitive market. In many of the once unpopular areas (only a few years ago), older homes are being torn down to build two homes on the same lot, each going for upwards of $300k+. I'm not one to "catch the fever", but it is hard to ignore to rapid expansion of new construction. Regular homebuyers (not investors) are paying considerably more than properties are appraising for, and even these higher priced homes are under contract within days of being listed.

What's the difference between speculating future (continued) market appreciation vs. buying in the PRE-GENTRIFIED areas because "it looks" like that's where the attraction is headed? Is it generally considered safe to begin investing in those post-gentrified areas (paying near-market rate) or is it too late to realize any gains after the big guys have built, sold, and moved on?

Are these neighborhood shifts more regulated by state/local organizations heading up the movement, or are they just becoming popular by word of mouth? In other words, I wouldn't able to start the next wave of people moving to such-and-such zip code, if I built a new house. I'm thinking it would take the attention of a developer coming in and doing X amount of new builds.

I don't know that there's a particular question in there, just something I've been tossing around upstairs :)

Luka Milicevic · Answer

Yes, it's a very competitive market but there is still a lot of opportunity out here. I don't know if it's considered speculation or not, but investors are moving to areas that they believe are going to be "the next area to go".

I wouldn't say a neighborhood is more/less regulated. There are zoning codes in Davidson County and certain areas are zoned what they are and those laws need to be followed.

You don't need to pay "market rate" in areas you said are post-gentrified. You just need to find a good deal. Of course it's not easy, but there are deals out there.

To your first point of home buyers paying more than list price-Yes, they are. Home buyers quickly find out that it's not easy to buy a home in Nashville, so when they see something they like they immediately put in an offer-most of the time higher than list price.

Russell Brazil · Answer

This comes down to how well you know your market. I have a really good sense of what areas still have a lot of room to run in terms of appreciation, which areas have likely platowed, and which will under perform. The conventional loan limits in my market often create a point of resistance in some of the more expensive gentrifying neighborhoods. See if those loan limits come into affect in your market or not. Im guessing due to the price points youve mentioned, they may have no affect as you may not be pressing up against them.

Speculation vs. Continued Appreciation?

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