If anybody reads or listens to Malcolm Gladwell, you know his view on a tipping market or event — once something tips, it moves quickly. When a neighborhood tips, you have little time to get into that market and secure something before the prices jump 20% to 30%. We have witnessed neighborhoods outside of central Manhattan jump in price over the past decade. Some parts of Brooklyn have increased in price by 100% in less than two years.
As an experienced real estate broker, I see many buyers chasing these markets, but most buyer’s timing is off cycle. It is similar to the stock market, investors want to get into the market when it is hot and stocks are up. However, perceptive investors buy when the market is out of favor and let time be their partner as they position their asset for real growth.
Many real estate buyers will only buy into a tipping neighborhood after prices have already jumped, and a majority will buy at or close to the peak. Peaks, in this type of neighborhood, are bad as well. Peaks usually lead to small drops in prices as the value momentum begins to work against you. Often the properties will drop in price by a few percentage points after the area has topped out as the wave of hungry buyers move to the next hot neighborhood.
The way to invest effectively in property is to purchase in an area that is not on the buyer community’s radar. It is true that these areas may still struggle with noticeable crime, bad schools and little to no amenities. However, these are the areas that will see 2x to 3x rise in property value over the next five years. If you do not want to move into the area while it has not yet turned or become hip then you can rent out your property for 3 to 5 years while the area is changing. By way of example, I just sold an $890,000 two-bedroom apartment in Lefferts Gardens a month ago. Two years prior, the now seller of that apartment paid only $410K for it. Moreover, many buyers who are moving to Lefferts Gardens today would not have moved there 24 months ago.
So if you are a true value hunter and want to see amazing returns, then follow me out to Hunts Point, Brownsville and Avenue D in Manhattan. Another possibility is a little know neighborhood called Homecrest — it is in Brooklyn. Finally, other potential options are in the East New York, Longwood, College Point, and Northeast Flatbush. It is a good bet that if you have not heard of the neighborhood yet, it is probably a good buy.