Purchasing a new home can come with its complications and issues. Many issues come into play when trying to buy a house during gentrification. Gentrification can make once cheap neighborhoods suddenly elite and cause budgets to fracture. When buying a house during gentrification, these are the issues to keep in mind:
Less bang for your buck
When a neighborhood is in the process of gentrification, chances are the neighborhood is not yet in its best state. Gentrification will take a dying neighborhood and use wealth and money to make it into something new. While some homes will already have the updates and refurbishments, others will lack the space and upscale renovations. Even though there may be no renovations to the home, it will still be priced high due to the neighborhood. Gentrification can definitely improve neighborhoods to what they once were, but the price is going to be very steep.
The cost of renovations
As said before, buying a home in an up-and-coming neighborhood is going to cost a pretty penny. Not just for the down payment or mortgage, but also for the probable renovations. Many homes in a neighborhood experiencing gentrification will be in need of updates. When a neighborhood has experienced a decline, homes typically go unkept and are outdated. Buying a home that needs repairs in a gentrifying neighborhood might affect your loan. When finding the right loan, look for a forgiving loan like a conventional or an FHA 203(k).
The tax estimation effect
The government and banks are not blind when it comes to gentrifying areas. Banks are usually the first to catch on and this will greatly impact your tax estimation. To ensure your loan payment stays the same they may limit the amount that you are allowed to borrow. When applying for a loan, let your banker know if your plan is to buy in a gentrifying area to plan properly. Although the taxes may be manageable today, that could potentially change in the future when the neighborhood becomes even more popular. It’s better to work on this your bank now rather than later.
Insurance will get tricky
Many neighborhoods going through gentrification are still carrying the burden of a declining neighborhood. Although the area may be on the rise and becoming more popular, there is still the issue of crime. Neighborhoods do not flip overnight. This is why finding insurance for a home in a gentrifying neighborhood can be difficult. If the gentrified neighborhood you are looking into was once a hotspot for crime, expect high insurance rates. Be sure to look into as many insurance companies as possible to ensure you are getting the best deal for your home.