Jen Trail and Jason Howes had their hearts set on finding a home in a hot neighborhood close to downtown Nashville.

But the first-time homebuyers had one problem: the neighborhoods that most attracted them – hip, eclectic districts such as 12South and Sylvan Park – were out of their price range.

The couple’s next step was to look for a home in an up-and-coming area close to a trendy neighborhood, but significantly less expensive. They bought a house for $80,000 in the Wedgewood-Houston neighborhood, gutted and rehabbed it.

Wedgewood-Houston is among a handful of inner-city areas in Nashville morphing from the fringe to the mainstream. They are attracting first-time homebuyers, young professionals and couples, and small business start-ups.

Housing experts, urban planners and investors call them emerging neighborhoods.

“Emerging neighborhoods are often close to areas that have already gentrified,” says Karen Hoff, owner of Historic and Distinctive Homes. “They have been previously thought of as borderline, but they are showing signs of improvement. They are great, especially if you don’t mind going into pioneer neighborhoods.

“There’s nowhere to go but up with these neighborhoods,” Hoff adds. “They tend to appreciate at about double the rate of most homes on the market.”

Realtors and investors say Wedgewood-Houston, Chestnut Hill, Historic West Nashville and pockets on the east side of town between Gallatin Road and Dickerson Road qualify as emerging neighborhoods destined for continued growth and investment. They are often bright spots for Realtors because homes and commercial properties often sell or rent quickly without markdowns or a long wait on the market.

Wedgewood-Houston

Four years after buying into Wedgewood-Houston, Trail and Howes are thrilled with their investment and location. It’s less than two miles from downtown Nashville, within a mile of Belmont University, less than a minute from interstate access and blocks from the Tennessee State Fairgrounds. Wedgewood-Houston is bordered by Houston Street to the north, Wedgewood Avenue to the south, 8th Avenue South to the west and 4th Avenue South/Nolensville Pike to the east.

This property at 1077 Second Avenue South is one of many that have been renovated or are being renovated in the emerging Chestnut Hill area between Greer Stadium and Trevecca Nazarene University.

“12South was our dream neighborhood, but we just couldn’t afford it,” Trail says. “We were thrilled to find Wedgewood-Houston because it seemed to us to be one of the last affordable neighborhoods near downtown Nashville and the universities.”

Trail says Wedgewood-Houston is appreciating at a faster rate than more established, pricier districts and that they have been able to settle in and work towards the long-term future of the district. One of the biggest obstacles the area faces is the lack of significant commercial development, he adds.

“I think everyone is waiting for the fairgrounds issue to be resolved,” says Clay Kelton, an agent with Pilkerton Realtors who specializes in the Wedgewood-Houston area. “The fairgrounds and the surrounding area is the perfect space for commercial development. I expect that will happen when the future of the fairgrounds gets more defined.”

Meanwhile, young families and singles are scooping available Wedgewood-Houston homes and upgrading them. There also is new construction, not a common occurrence since the economic downturn of 2008.

It’s not unusual for a home in the area to go on the market for $100,000. A similar home a mile away near Belmont and Vanderbilt universities would be sell for $300,000 or more, Kelton says.

Trail says she believes the neighborhood will need to solidify its identity to reach its potential.

“One thing holding us back is that we don’t have a central gathering place or retail stores that can provide services to neighbors,” she says. “We need something that will make the neighborhood a destination. We need something that sets us apart from 12South.”

Chestnut Hill

5201 Michigan Avenue in "Historic West Town," a neighborhood known for years as The Nations.

Bordering Wedgewood-Houston is Chestnut Hill, another neighborhood on the cusp of a major transformation. The emerging neighborhood has about 125 homes and some commercial and warehouse spaces on 1st, 2nd, 3rd and 4th Avenues South and is bordered by Greer Stadium, historic Nashville City Cemetery, Trevecca Nazarene University and the Tennessee State Fairgrounds.

The area is active with construction and planned projects, funded by both public and private investors. Eight million dollars of federal stimulus money is jumpstarting several projects in the area – a mixed-use development with 10 residences and 2,000 square feet of retail space, the 1219 1st Avenue South project, a quadraplex designed by students from Tennessee State University, and a development of 11 affordable townhomes on 3rd Avenue South.

Shawn Bailes, a private investor with a multi-million dollar investment in the Chestnut Hill, is getting full list price for newly constructed townhomes at Southview on 2nd, an infill development of 11 cottage-style townhomes on 2nd Avenue South. The modern two- and three-bedroom urban condos, priced from $184,900 to $209,900, are attracting buyers in their 20s and 30s searching for affordable alternatives to hot areas such as The Gulch or upgrading from less expensive housing, Bailes says. Seven of 11 units Southview on 2nd have sold or are under contract.

“Chestnut Hill is the last downtown neighborhood that didn’t get developed before the economic downturn,” says Buck Snyder, affiliate broker at Worth Properties. “It’s a neighborhood with good bones, and many of the properties make sense for rehab. The neighborhood still needs to hammer out an identity, but the numbers (for investors and homeowners) look pretty good. It’s the “only place near downtown where you can get a two-bedroom condo for under $200,000.”

Bailes seconds Snyder’s assessment. He bought a run-down Victorian for $35,000 in 2010 as a litmus test to see if an upgraded property could attract new buyers to the area. He spent months rehabbing it. Once it was put on the market, the home sold in three days for $220,000 and won three awards from the Metropolitan Historical Commission of Nashville and Davidson County.

Elroy Mihailov, a new Chestnut Hill resident, had previously been reluctant to buy in the area but changed his mind because of the area’s revitalization efforts and the prices of new construction. The graphic designer previously lived in a one-bedroom condo in the Park at Melrose development off Eighth Avenue South. He wanted more space but knew he couldn’t afford it in most of Nashville’s most trendy districts.

“I’d driven through Chestnut Hill over the years but always thought it was a no-go zone,” Mihailov says. “It was kind of fringe and not fully developed. When I saw what was happening, I took another look. I saw the neighborhood and its value in a new light.”

Mihailov was the first buyer in the new development. He was so enthusiastic about the area that he convinced a friend to by a condo in the development.

“It definitely is an upgrade for me,” he says. “I have an extra bedroom and all the finishes and materials are nicer. It really fit all my criteria.”

East and West pockets

Realtor John Brittle works directly with investors and homeowners scouting for the next new “it” neighborhoods. Brittle, who’s director of land sales at Village Real Estate Services and founding member of InfillNashville.com, says interest in development properties near emerging neighborhoods is spiking.

“We are tearing it up,” Brittle says. “Last month we closed on nine homes and lots.”

Recently, Brittle’s clients have zeroed in on a handful of pockets of East Nashville – McFerrin Park, Cleveland Park and Maxwell Heights. All of these urban wedges are located north of Gallatin Pike and south of Dickerson Pike in areas once known more for crime than opportunity.

Brittle is also seeing an uptick in property sales in an area north of Sylvan Park and Charlotte Pike historically known as The Nations. Realtors and homeowners have in recent years rebranded the district as Historic West Town in an attempt to focus on its plentiful stock of historic homes rather than its past reputation as shabby.

Mark Hayes, who owns West Nashville Living, a small real estate development group that focuses on rehabs and rentals, specializes in the Historic West Town area. He had the best year of his nine-year career in 2010 and says 2011 was almost as good.

“It’s still a very affordable area, and it hasn’t peaked,” Hayes says. “There’s a good mixture of Victorian, cottage and bungalows. Many of the people who buy in Historic West Town are young people and couples priced out of Sylvan Park. It offers great values, is only five minutes from downtown and is one of the few areas where homes and land are still appreciating.

Hayes has renovated about 40 homes, the majority in Historic West Town and owns about 35 rentals.

Brittle, also high on Historic West Town, calls the price difference between similar homes in nearby Sylvan Park ‘nothing short of stunning.’ New construction in Sylvan Park is running about $500,000 and $300,000 and up.”

A two bedroom/bath historic rehab in Historic West Town runs in $120,000 range, and larger three to four bedrooms are $150,000 to $200,000 Hayes says.

Brittle, who’s in the business of sniffing out promising areas, has identified a handful of promising areas that could turn into emerging neighborhoods with the right mix of investment and home owner’s activism. They include the areas around Fisk and Tennessee State universities in North Nashville and Capital Heights, which is close to downtown Nashville and the Tennessee State Capital.