Understanding Community Life Cycles

Published by Lance Mohr | Filed under General

Anyone interested in buying or selling Tampa real estate should understand the natural life-cycle of a neighborhood. Communities are a lot like people; they undergo various changes throughout their natural lifespan. By understanding what stage Tampa Communities are in or likely to be entering; it is possible to make a hefty profit especially given the recent influx of foreclosures or potential for short sales on the market.

When it comes to real estate life cycles, it is important to understand the building boom and bust cycle. Recently, the entire nation experienced a major “boom” cycle where new homes and entire communities cropped up overnight. Across the nation large tracts of land were developed and new communities created seemingly out of thin air. A similar scenario happened during the 70’s. Although large nationwide boom/bust cycles are less common, every city experiences similar – albeit smaller – cycles.

Stage 1 – Brand New Buildings. The first stage of a community is characterized by brand new buildings, a convenient yet slightly out of the way location (usually on the edge of town), new amenities and other modern conveniences. Because the neighborhood is new there is little sense of community. Most homes are financed by conventional methods and purchased by moderate to upper incomes buyers. Little maintenance is required and there are very few rentals available.

Stage 2 – Stable Communities. After five to ten years the community has become more stable; neighbors know one another and new residents come into the area through the sale of existing homes. Normal maintenance on the homes is required and financing may take place to enhance some homes or provide for “extras” like pools or additions. There are a few homes in the area used for rentals which typically obtain better than average rates.

Stage 3 – Mature Communities. Once a community is 10 to 15 years of age it begins to experience a greater percentage of transition; more Tampa homes are used as rental income properties as inflation and appreciation combined with the pay-off of 15 year mortgages makes it profitable to rent these homes. Since the average homeowners remains in a house for 5 to 7 years, most of the original buyers have either transformed the home into an investment property or have long since moved to another community. Major maintenance is required for roofing, HVAC systems and other upkeep. Depending upon the demographics and income bracket of the neighborhood, signs of deferred maintenance, neglect and other problems can begin to decrease the value or – if the homes are generally kept in good repair – the community transforms into a desirable area for first-time buyers and upper income renters.

Stage 4 – Decline. Homes in distressed areas with high crime rates and low incomes that are unable to sustain required maintenance and upkeep on the properties will typically fall into a state of decline. Neighboring homes in a state of disrepair further depress market values of remaining homes with the result of attracting only the most marginal buyers. High numbers of rental properties and undesirable or criminal elements further depress the value of homes in a vicious cycle of decline which will eventually require intervention.

Stage 5 – Renewal.  Once a community has fallen into an abject state of distress and decline, it may continue for decades until a government or private entity take the initiative to intervene. Renewal and renovation projects must be comprehensive and encompass the entire area in question for success; Tampa historic districts like Hyde Park, downtown development cycles and other projects are common examples of successful renewal and revitalization projects.

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