Why you want to buy in a Hipster Area & Find the next Brooklyn or Silverlake

22 Replies

I was reading an older post from 2013 as I do. I am not sure how many posts I have read but I feel like I have a BA in BP at this point. In one older post it talked about some new hipster areas and there were some opinions as why not to buy in them - which I thought was flat out silly advice for investors. I wanted to touch base on why you might consider Hipster areas vs non Hipster. These areas exist in nearly every major city.

This seems obvious to me as hipster areas have the highest appreciation and rent growth. Why? Location and demand. Vacancy rates are virtually zero. I know of one apartment in a longtime hipster area that has had 3 tenants since the mid 1950s. Talked about low turnover. Vacancies and turnovers are cash flow killers. Hipster areas can take that factor off the table for decades apparently.

Now getting back to appreciation and rent growth. Let me go over some basics. 

One good reason for hipsters is forced appreciation. This is self explanatory. You can look at some examples on BP where a redo in these areas brings in hundreds of thousands of equity and doubles rent in months. 

The new Airbnb factor. Yes it is more work but in some areas you can triple or more returns with this move. For example in Studio City, you can rent your house for $4000 or VRBO for get this.....$10,000+ a month. See Mashvisor.  Actually, they reported 17k a month but I will stop at 5 figures. You have more options in hipster areas.

Let's consider a straight up buy and hold. If that hipster area has rent growth and appreciation built in it could have returns in the hundreds of thousands in as little as 10 years. Check the calcualtions for 3% rent growth and 5% appreciation. If you get in the next Brooklyn or Silverlake area you will be stoked.

Let's say that hipster property is 320k and rents $2200 today, add in the above rates and in 10 years you gain $290k equity. Cash flow would be in the $800 per mo arena. Do yourself a flavor flav and get a hipster property today. It just might be the best investment you could ever make. Why? Equity gains, rent gains, forced appreciation, more options, easy to rent and easy to exit. (I know some say you can't do anything with equity, this is absurd)

Agree or disagree - thoughts?

Updated almost 3 years ago

Talk about low vacancy. Please excuse my two thumb tablet typing:)

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@William M.  Yes William I am in your camp. I don't know Brooklyn but I imagine there are still areas ripe as the first hipster areas spill over. I am seeing this all over LA now. I am not sure there are many good arguments against this type of location specific investing as it all makes total investment sense looking forward. 

Thanks for posting and good luck with your search! 

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This strategy used to be called, "Follow the gays."

Hipsters are usually the first ones in when an area is being gentrified. 

@Richard C.

 Understood. I don't know how PC that is to mention but one might add follow the Asian gays. Not that there is anything wrong with that as Jerry Seinfeld says. For sure certain age groups and cultural types are attracted to the hipster areas and all they offer in terms of entertainment, eateries, art,culture, walkable, distance to high paying jobs etc....

The Yelp word map is kind of fun to play with.  It shows the frequency that certain words appear in their reviews, and you can select "hipster" as one of the choices. 

http://www.yelp.com/wordmap/la

For L.A. it shows the usual suspects including Echo Park, Silver Lake, Arts District and others.  And has info for many other cities. 

The map shows one area not talked about as much -- Long Beach along 4th St. -- which I thought was kind of interesting. The prices there on single family homes still seem decent for California standards, like the lower to mid $400's, while still being close to the beach

I think this is very true. I live in BK, and had seen how Williamsburg changed and how Bed Stuy is now changing. It is exciting how people change entire communities. I agree that the forced appreciation is totally possible in those areas, and  the rent growth is almost guaranteed, although i hate to use that word. 

@Lee L.

 Great observation Lee. I like that 4th street area of Long Beach. I can not imagine that is where new hipsters would not be attracted to long term. My buddy keeps talking me out of it for sketchy reasons. I think we have to look at sketchyness as part of the program. I used to visit the Pike area back in the day if you really want to know what sketchy is. This area has already improved like night and day compared to what I remember. Still a challenge but long term this might be a good prospect worth investigation. 

Btw we used to call LB - Wrong Beach. I think that take is a thing of the past especially when you look at simple geography. Thanks for posting!

@Anna Hamann Good point as there are no guarantees right.....but BK might be the next best thing to a guarantee. Consider 14% of all people living in the state of NY live there, the population is 2.6 mil....all of LA is 3.8 mil and the BK hipster factor is going off the charts. Looks like a ready made hipster opportunity if you ask me. 

I would say follow the artists first. The hipsters follow the artists. I see artists as Phase 1, then hipsters that follow Phase 2.

Think Lower East Side and East/West Village, back in the days.

The hipsters are going up to 2 hours north of NYC now, for the last few years.

@Betty T.

 This makes sense. I do think this hipster event is snowballing. To get ahead of that snowball should lead to one huge friggin snowball:)

Originally posted by @Betty T. :

I would say follow the artists first. The hipsters follow the artists. I see artists as Phase 1, then hipsters that follow Phase 2.

Think Lower East Side and East/West Village, back in the days.

The hipsters are going up to 2 hours north of NYC now, for the last few years.

Betty, what towns upsate are they going to?  I know I've heard many former Brooklynites have ended up in Beacon, and possibly Woodstock.  Any others?

@Eric A.

Definitely Beacon. Also Highland Falls, Fishkill & Wappinger Falls. These are commuters.

Some folks are also doing Newburgh, but only by the water.

Rhinebeck, Saugerties and Millbrook are already way established...so not sure if they are the right places to look.

Betty, 

Interesting, I knew that people move there from BK, but was not aware that is is Hipster Crowd. Thank you for the insight! 

@Anna Hamann

Rhinebeck, Saugerties & Millbrook - Not hipsters. More established folks, for sure.

Beacon, Highland Falls, Fishkill & Wappinger Falls & Newburgh - hipsters moving on up north!

Got it, thank you! 

@Richard C.

Cleveland is getting some hipster factor going apparently. It is interesting for investors that nearly all of these cities have a hipster hot spot in development. You got to figure over time some of these locations will do a 180 based on proximity to the hipster stuff. This was not the case in most of these cities a few years back. The millennials are driving this. Turns out their numbers might be adjusted to 90 million vs the baby boomers 75 million. The baby boomers left these areas in droves decades ago. But now even boomers are looking for the walkable hipster stuff. I don't think it is a leap of faith to see how investing in these hipster walkable hot spots might produce superior results vs investing in the average run of the mill suburb. 

Might, but you have to correctly predict where that next walkable hipster hotspot will be.  Which isn't necessarily easy.  That fact, when combined with data that shows that much of the press buzz about Millennials' supposed preference for cities is fraught with confirmation bias, and that Millennials in fact choose suburbs at the same rate as their parents, suggest to me that the average run of the mill suburb is the safer bet.

@Richard C.

That is a good point. I don't think the hipster stuff will be at the expense of the suburb necessarily.

It has been a developing story for decades and no doubt hyped up. It visually appears we are seeing some of that hyped story being played out. At least that is what I see with the few new hipster areas I am aware of.  What could be driving some of this too is the limited supply of actual hipster areas. If I compare that to the amount of supply in the suburbs I can see how just a little shift in human residential behavior might create an opportunity worth more investigation. The actual numbers could be deceiving in that more might move to the suburbs however the smaller remainder population are fighting it out for that one hipster location available.  

@Matt Rosas

I believe the shift in human residential behavior is temporary. Millenials (like me) are still planning to buy homes, it just happens that this bulge in demographics are at the age where most of us are still renting. In 3-5 years, we'll be buying homes. There are articles pointing to this. ie: this article from Forbes.

As for following the hipsters, I think it's "follow the artists". Artists (stereotypically) have little money, find hideaway warehouses and cheap places to do their art or perform underground music. Then coffee shops pop up as they bring traffic. Then the rest follows. "Hipsters" is an ambiguous term. It means everything from the early adopters in these cool areas to the tons of people who follow the trend even after a neighborhood has jumped the shark. Here's an article about how Williamsburg is past it's peak. 

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