Up-and-Coming Neighborhoods: Great Buying Opportunities

Want to know where the next hot real estate markets will be? Watch where the artists are living now

by Prashant Gopal

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Soho was once one. So were Tribeca; Venice, Calif.; and Philadelphia's Old City. These former gritty neighborhoods once offered low-cost housing for artists.

Over time, these neighborhoods flourished, adding art galleries, coffee shops, hip little boutiques, and cool restaurants. Property values in turn increased to the point where many of the original artists found themselves priced out. Eventually the artists moved on in search of new bohemian blocks, but for the savvy home buyer, keeping an eye on where artists live can be a great way to get in early before a market takes off.

The reason is that artists are happy to move where real estate investors aren't prepared to go—crime-ridden inner cities with trashed-out apartments, inside rat-infested buildings that seem destined for the wrecking ball.

Artists aren't looking for the next hot neighborhood, just large, affordable spaces where they can grind, hammer, saw, and generally make a racket in the name of creativity. But they often set the stage for redevelopment, and home buyers who follow their lead can sometimes get in while real estate prices are affordable.

Urban Areas in Transition

Over time, the abandoned warehouses artists occupy become gorgeous lofts and studios, and gritty neighborhoods transform into trendy communities with an edge. That's when the investors, developers, and wealthy buyers arrive, pushing up rents and displacing the artists who are then forced to set out for the next undesirable neighborhood. It's a cycle that has repeated itself for decades, in cities across the nation.

"When artists go to a certain neighborhood, that's a really strong sign for investors to come in," said John Villani, author of Art Towns California, a book that will be published next month by The Countryman Press, a division of W.W. Norton. "They're the ones who were there first and tend to be first to be pushed out also. It's really kind of a discouraging cycle for a lot of artists. They feel used and manipulated by forces bigger than them."

Artists turned around Soho and the Lower East Side of Manhattan in the 1960s, '70s, and '80s, and then Brooklyn's Williamsburg in the 1990s. Now you'll find them in Bushwick and Bedford-Stuyvesant in Brooklyn, and Astoria in Queens. Similar trends are occurring in Boston, Los Angeles, San Francisco, Philadelphia, Miami, and Austin, Tex. BusinessWeek.com selected 15 urban neighborhoods that artists have discovered and where homeowners could see returns in coming decades.

Of course, these transitional neighborhoods, such as Castleberry Hill in Atlanta, Wynwood in Miami, and Northeast Capitol Hill in Washington, aren't for everybody. The neighborhoods typically aren't known for their great public schools and are in early stages of gentrification.

"It depends on how tolerant people are of nontraditional lifestyles," Villani said of transitional neighborhoods. "You have to have a capacity to overlook the presence of homeless people, to not be intimidated by street life. You need to have a sense of inner security that's not going to be upset that life will be kind of chaotic at times."

Downturn Creates New Opportunities

Andrew Cray, 36, began buying houses in Bushwick in 2003 after noticing that the neighborhood had great subway connections and was the next neighborhood over from Williamsburg, an artist enclave where home prices were increasingly expensive.

Cray bought a three-family house for $350,000, a property that today is worth about double as much. He now lives in Bushwick where he owns five houses, which he rents to artists and other young people with low-paying jobs who are often living in New York City for the first time. Crime has dropped dramatically and activity is buzzing around the Morgan Avenue subway stop, the closest stop in Bushwick to Manhattan on the L train. A natural foods store, a brick-oven pizza place, cafés, and art studios have popped up to serve the changing community.

The yuppies haven't arrived yet, but they will, Cray said.