Moving to Rhode Island: A How To Guide for Families Buying Homes in the Ocean State.
Decision made: the family is moving to Rhode Island!
Now, time to narrow the search. Which towns? Which neighborhoods?
In last month's introduction, I made the case that prospective buyers should look at this through multiple lenses, including the potential return on the investment. For most, the purchase of a home is the most significant investment they'll ever make.
How reliably can we predict future appreciation?
We could ask the same question about any asset class: stocks, bonds, oil, etc. The naysayers will argue that appreciation is purely speculative. A roll of the dice. Cashflow, they'll say, is the only sure thing. And there's some truth to that, but shrewd investors know not to throw out the baby with the bathwater. Asset and wealth management is a multi-trillion dollar sector across the globe, and the wealthiest employ teams of fundamental analysts to do just this: carefully analyze available data to gain an edge on which investment opportunities hold the greatest upside for future returns.
Disclaimer: There's been a lot previously written on this topic. It ranges for the topical to overly technical. In what follows, I offer a more balanced take -- somewhere beyond conventional wisdom but short of standard deviations -- with a local context.
Indicator #1:Population Growth
One of the strongest drivers for appreciation is population growth. This one is pretty straightforward and noncontroversial: an increase in a market's population will increase demand and homes prices. Excluding towns with populations under 500 residents (sorry, Foster and Misquamicut), here are the towns with the highest growth rates over the last five years:
Kingston, RI: +6.03%
Cumberland, RI: +5.89%
South Kingston, RI: +5.23%
Providence, RI: +2.85%
Central Falls, RI: +2.53%
It's worth noting that as a state, Rhode Island's population has remained pretty steady overall, increasing 0.1% over the same time. The towns with the weakest growth were Woonsocket and Warwick, each declining in population by approximately 3%.
Indicator #2: Past Performance
Past performance doesn't always predict future success, but it's a good starting place. The following cities and towns have seen the biggest run up in median home price since 2000.
It's telling that 9 out of the 10 towns above are coastal, with the capital city being the lone exception (I guess you could make the argument for Providence). Of the waterfront-laden towns, there's a mix of tourist friendly spots (e.g. Block Island and Newport) and residential locations with well regarded public schools. Additionally, these are places where the median sale price for homes is already well above the state average, proving that that rates of highest growth aren't always with the up and coming locales.
Indicator #3: The Path of Progress
As Jay-Z once put it: “I could’ve bought a place in Dumbo before it was Dumbo / For like two million / That same building today is worth 25 million / Guess how I’m feeling? Dumbo.” If you invested in Dumbo, a then underutilized stretch of Brooklyn waterfront, you'd be a made man today. Last year, 85 Jay St. sold for $345 million to be used as a parking lot.
Enter Neil Bawa, real estate investing guru, who has developed a brilliant technique for modeling which areas in a town or city are likely to appreciate more rapidly than nearby neighborhoods. In a nut shell, he encourages investors to look for areas where median household incomes levels have risen ahead of home values.
It is my experience that home prices will always catch up to income levels.
Genius, right? And the data backs this up.
To visualize this, you can go here and search up your city or town of interest. To illustrate this concept, let's consider Providence's upper East Side. The first map (left) shows % change in median household income since 2000. The darker the gradient, the higher the growth. The second map (right) shows how median home values have changed in that same span of time.
The areas marked with $s are those where we would expect to see greater appreciation levels as home prices catch up to income levels over time. Obviously, there are many other factors to consider, but this framework will help direct our attention to areas with higher upside.
Local Investor Opinions
Which towns are likely to see above average rates of growth in value over the coming years?
I put took this question to a group of local buy and hold investors.
Several were bullish on waterfront communities that haven't yet seen the run up in appreciation of other similar town:
"In my opinion, I think you’ll see a great return in places like Island Park in Portsmouth, or anything with a water view in Tiverton. There are lots of older houses in these areas that people bought long ago, when there was plenty of waterfront property available." - Chris St. Peter, local investor
Another investor, Erika Twohig, offered this take: "I think we will continue to see a migration to RI from Boston and NY because of the water and “reduced” cost of living compared to the cities. Look at coastal towns, towns with main streets that are walkable, also semi rural towns with lots of land yet close enough to amenities."
Other picks included:
- Pawtucket, especially the along the 95 corridor
- Lincoln and Cumberland due to improving school rankings and location along 295.
- Cranston due to its track record of being pro-business and pro-growth
- The Elmwood, Olneyville and Silver Lake sections of Providence
If you're interested in my Top 5 Best Picks, reach out to me at firstname.lastname@example.org.
Spoiler: Improving schools, proximity to water, and proximity to towns that have already seen large run ups in appreciation are the drivers I believe to be most predictive of appreciation.
Up Next: Schools
In our next post, we'll take a closer look at local school systems, one the most critical factor families must consider as they weigh potential landing spots.
Was this helpful? Way off base? Glaring omissions? Drop them in the comments section below.