If you're intent on flipping apartments in a down market, you'd be best to avoid Manhattan and consider a longer time frame.
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New York City is at the bottom of a list of cities where flipping an apartment is profitable. As one of the most expensive real estate markets in the country, would-be flippers have a hard time finding apartments they can buy on the cheap, to say nothing of steep closing and renovation costs.
There's also the current market to consider—flippers face another challenge when it comes time to sell. Sales are slowing as buyers try to wait out some of the market's uncertainty. Jonathan Miller, president of appraisal firm Miller Samuel, says there are flipping opportunities in down markets but their "frequency is diminished" and they are usually done by specialists in the market.
"We are in a market now where prices are generally not rising and more often flat to declining so the opportunities are simply not there as they were before," he says.
Timing is everything when it comes to flipping an apartment and “this is definitely the wrong time,” says Gea Elika, principal of Elika Real Estate, a firm that works with buyers. He points to the need for “market momentum and broad demand,” neither of which are in huge supply.
However, Garrett Derderian, managing director of market analysis at CORE, says flipping is still a "viable option" in New York City.
"It is a matter of finding the appropriate value-add property in a growing area, at the right price,” he says. The advice: If you're looking to make money in this way in NYC, you'd be best to avoid Manhattan, consider a longer time frame for owning the property before selling, and focus on serving buyers who will pay for the convenience of a turn-key apartment.
Head for the outer boroughs
When you're flipping an apartment, you're relying on what Elika calls the "move-up buyer," someone who is looking to upgrade from a studio to the one or two bedroom that you have bought at a low price and remodeled in hopes of making a profit. Of course, flippers also remodel townhouses and Elika says you're more likely to find that kind of buyer at more accessible price points in the outer boroughs. He says flippers are generally working with budgets of $400,000 and up and will "be better off deep" in the outer boroughs.
Derderian identifies Crown Heights and East New York as areas where the median and average prices hover below $1 million, and are neighborhoods that "have continued to attract a growing number of individual purchasers and investors."
He says over the past six months, the number of contracts signed in Crown Heights increased 18 percent year over year, and median sales price increased from $860,000 to $942,500, a jump of 10 percent. In East New York, Derderian says the median price increased 4 percent, from $340,000 to $352,500.
Consider a longer time frame
While those wanting to flip an apartment usually try to turn it around within a year or two, Elika says right now the only way you are going to make money is "if you are looking at the longer term," by which he means a time frame between five and seven years. This is backed up by data that found 20 percent of Manhattan apartments between 2014-2018, in the $1 to $4 million price range, sold at a loss within five years of their purchase. That was up from 12.5 percent in the prior five-year period of 2009-2013.
Buyers looking to flip an apartment or townhouse are usually leveraged and that can make it much harder to wait out the market.
Look for emotional value
Elika's advice for flippers is to capture what he calls the "emotional value" in a property—and meet the needs of a buyer is expecting a life change; such as marriage or a baby. He believes it "takes an understanding of the market," a good-quality remodel, and the right kind of unit. For example, there’s no emotional value in a studio in his view, because you live in it only as long as you have to before upgrading to a one bedroom.
"Emotional value is where you get a bonus for your effort because otherwise, there are really thin margins," he says.
The value in a townhouse
The opportunity for the greatest return is finding a townhouse in complete disrepair and doing a full gut renovation, says Matt Hughes, a broker with Brown Harris Stevens. But he points out, the townhouse market is currently one of the softest NYC markets. "Plus, many investors cannot afford that type of property or take on that level of renovation," he says.
Elika says there are better places than New York City to flip a property, for example, New Jersey, where there are less risks and more options for your price point.
It's all about your level of commitment, Miller says. "It really comes down to who has the most local market knowledge and who is focused on it rather than it being a side hobby," he says.
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