House flipping is a flop for NYC neighborhoods

by Center for NYC Neighborhoods on 5 Comments
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NYC House Flipping Trends

A flip occurs when a property is sold on the market twice in less than a year. Click on a point to see more information about a flip.

Methodology

We define a flip as a property that is bought and sold in an arm’s length transactions within a 12-month period. An arm’s length transaction is a sale that occurs via the market and not between actors who are related or otherwise inclined to carry out transactions at non-market prices. The analysis focuses on 1-4 unit homes and excludes condominium and co-op sales for consistency and to maintain the integrity of our data for comparisons across years and neighborhoods.

Profit: Also known as gross return or return on investment, profit is the difference between the price at which a property was bought and the price at which it was sold divided by the initial purchase price. The median profit per flip is the median of gross returns for all flips within a given neighborhood or year. This measure does not account for renovation expenditures by the flipper.

Our data, which includes sales from 2003 to 2015, is drawn from the City Department of Finance’s annualized sales data. Neighborhood boundaries are derived from the same source. We filtered out transactions that were not at arm’s length (for example, the sale of a property from parent to child). We excluded sales for less than $100,000 and those properties that were bought and sold within five days.

We use medians rather than averages to dull the influence of outliers in the data and give more accurate comparisons between neighborhoods and years.

The year of the flip is defined as the year in which the resale occurred. So if a property was purchased in December 2014 and sold again in February 2015, it is described as a 2015 flip.

Finally, all dollar amounts have been adjusted for inflation to reflect 2015 dollars so that we can compare changes in flip profitability across time.

NEW YORK CITY
There have been about 30,000 flips in
New York City since 2003.

 

While house flipping has become popular entertainment on TV, for many affordable New York City neighborhoods it is a reality show that too often ends with families displaced from their communities.

In neighborhoods like East New York in Brooklyn and Jamaica in Queens, properties that working- and middle-class New Yorkers could once dream of owning are being bought by LLCs and resold, often in a span of a few months, for immense profits.

This fuels displacement as house prices inflate, attracting more affluent residents from outside the community and leaving locals priced out — hallmarks of gentrification. Meanwhile, properties that were once family-owned become income-generating investments for speculators.

The Center for NYC Neighborhoods analyzed the impact of real estate speculation on the owners and tenants of small homes throughout the five boroughs, and found that while house flipping declined after the 2008 housing crash, today it is creeping back up — and making housing less affordable in several Brooklyn and Queens neighborhoods that have long been havens of affordability for working New Yorkers.

“There’s a real rush to make money in our neighborhoods because you can get such a higher return here and what that’s doing is creating these false markets,” Christie Peale, executive director of the Center for NYC Neighborhoods, told NY1.

READ THE FULL REPORT

 

The Center examined property flipping of 1-4 unit homes in New York City from 2003 to 2015 and found that speculation has become dramatically more profitable in recent years. In 2015, flipped properties produced a median resale profit of $215,000, or a 75% gross return on investment. In some cases, investors saw profits of 200 to 300%.

Not only does this mean that flipping is putting homes out of reach of working- and middle-class buyers, it’s also depleting a vital source of affordable rental units. That’s because investors who buy these small homes, which are often divided into apartments for multiple families, are likely to raise rents to capitalize on the increasing popularity of the neighborhoods.

East New York homes

The Center also found that neighborhoods in Brooklyn and southeast Queens had more flips than other parts of New York City. East New York — a community being reshaped by development as it undergoes a rezoning that the City says will generate more affordable housing in the neighborhood — had the highest number of flips in 2015. Bedford-Stuyvesant in Brooklyn, Jamaica, St. Albans and Springfield Gardens in Queens, also had high numbers of flips.

But Brooklyn is seeing some of the most rapid changes, with higher profit margins than any other borough in the city. Four of the top five neighborhoods with the largest gross returns from flipping were located in Brooklyn. Cypress Hills led all neighborhoods in 2015 with a median gross return of 125%.

Flipping also had a particularly powerful impact on sales prices in the borough. For all 2015 flips in Brooklyn, the median price of the first sales was affordable to family with a low-downpayment mortgage making about $74,000, or 95%, of Area Median Income. However, after the flip, the median price of the second sale was affordable to a family with the same low-downpayment mortgage making $127,000, or 163%, of AMI.

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Leave a Comment

  1. Robert Bullock

    Hi,

    Thank you very much for this extremely informative report. One question if I may: anecdotally I have heard that flippers’s effective purchase prices of homes can be under-reported, not accounting for tax liens, city fines, or other ‘hidden’ costs of a property, and that under reporting may also be done, illegally, to skip out on taxes. I realize that these things are hugely difficult to uncover in a large sample, let alone quantify, but do you have a sense for how important they are?

    • Cristian Salazar

      That’s an excellent question, Mr. Bullock. I don’t think it’s something we’ve analyzed, but I will raise the questions with our policy folks. It might be worth digging into. Thanks!

  2. Debbie Tiamfook

    BUILDING STRONG SUSTAINABLE COMMUNITIES BLOCK BY BLOCK

  3. pvw

    I liked this report. Thank you. I look at the flipping problem from a different perspective, though. The sellers in these communities are lower middle class and working class black and Latino families. They are longstanding owners who don’t realize the value of their property, so they get taken advantage of when a flip occurs. The family paid much less for their property years ago. As a result, they might think that the flipper’s offer sounds good. However, they should be the ones to get the greater profit from the increased value, not the flipper.

  4. Pingback: Six years after the Great Recession, house flipping is on the rise | Kinloch Partners LLC