Fliperati

A weekend out with a team of brokers in Brooklyn woke me up to the realities of trying to start this enterprise in one of the five boroughs:

1)      Everything is astronomically expensive
2)      Entry barriers for purchase are extremely high because of large down payment requirements in most buildings
3)      Very limited stock of condominium units and most co-op units are non-starters because the board would be unlikely to approve a buyer like me who wants to purchase and flip the apartment in 2 – 6 months (which seems counterintuitive because I would be improving the unit and getting a higher-class owner in once I resell, which would theoretically contribute to rising property values throughout the building)
4)      Closing costs and taxes in NYC are also astronomically expensive

As an example, I saw a fliptastic 1 bedroom co-op on the waterfront in Brooklyn Heights last weekend with an asking price of $389,000.  The unit had a beautiful view and was a respectable size for a New York apartment.  The major problems were that the bathroom and kitchen both needed to be gutted and re-done.  Also, there was a very large pantry between the kitchen and the living room that, if removed, would create a really nice open layout and make the place shine (read: sell for big $$).  The broker showing the apartment speculated that the max a 1 bedroom in that building would go for is $450,000 and, assuming you were able to buy the place at $375,000, that leaves $75,000 of room for carrying costs, renovation costs and profit.  My prequalification package had a good faith estimate of $12,500 in closing costs and, after factoring in 3 months of carrying costs at $2,500 per month and $35,000 in renovation costs, you’re left with only $20,000 in potential (pre-tax!) profit.  Not a great return (especially after taxes) if you consider the upfront investment required ($93,750 down payment + $12,500 in closing costs + $7,500 in carrying costs + $35,000 in renovation costs = $148,750 out-of-pocket spending on the project – yikes!).
The co-op board never would have approved my purchase application anyway, so that whole exercise is completely irrelevant, but hopefully it illustrates my point about the upfront cash required to pull off a flip in NYC.
I’m sure there are people out there with more experience and a little more capital who are able to execute a flipping strategy in one of the five boroughs, but my research to-date is sending me across the Hudson to New Jersey in search of a run-down single family home.  Taxes, transactions costs and the stock of desirable properties are all more favorable in the Garden State.