REAL ESTATE TRENDS...Investors are flipping troubled homes like it’s 2006 again

By Catherine Curan

Home flipping, a staple of the pre-recession real estate boom, is on the rise again.

Romanticized on reality TV as an exciting path to quick profits, flips are defined as a resale within one year after buying the house.

The reality on the ground in Queens, where flips have spiked 10 percent in the first half of 2016, and Long Island, where they have vaulted nearly 40 percent, is the loss of hundreds of affordable homes for low- and middle-income New Yorkers.

The continuing foreclosure crisis, combined with an economic recovery that has excluded many New Yorkers, is fueling the uptick.

In the second quarter, 46 percent of Long Island home flips, and 34 percent of those in the five boroughs, were purchased as distressed properties, according to Attom Data Solutions.

By some measures, the distressed percentage in New York City is even higher.

More than half of the one-to-three-unit properties flipped in 2014-15 received a foreclosure notice within the last three years before the sale, according to the Center for New York City Neighborhoods, or CNYCN.

Nearly 300 homes were flipped in Queens, and 650 on Long Island, in the first half of 2016.

“There’s a bit of a surge in flipping,” said Daren Blomquist, senior vice president at Attom, noting that Long Island is “getting close to peak levels of flipping [it had] back in the last housing boom.”

The recent uptick falls well short of the city’s 2005 peak of 908 flips in a single quarter. But this year’s hefty increases on Long Island and in Queens, following growth for the last several years, particularly in Central Brooklyn and Southeast Queens, has experts calling for action to stem the tide of massive price hikes on properties scooped up cheaply from distressed homeowners, often in traditionally African-American enclaves.

This trend has wide-ranging consequences. Distressed homeowners who sell at cut-rate prices lose out on equity in their properties, while hardworking renters seeking their slice of the American dream can’t afford to own in the neighborhoods they have long called home.

Hundreds of renters are also at risk of getting priced out, as affordable rental units disappear due to renovations.

While flippers can help clear the real estate market of the buildup of derelict properties, speculators focus on homes in neighborhoods where home prices are depressed.
New York City flippers have targeted neighborhoods like Brooklyn’s East New York and St. Albans in Queens, where foreclosures allow them to buy cheaply (less than $300,000 on average in Queens).

Rising property values and gentrification, meanwhile, are fueling huge profits. Last year, flippers in NYC reaped a $215,000 median resale profit, or a 75 percent gross return on their investment, far exceeding the national average, CNYCN said.

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“We would like to see working- and middle-class New York families be able to buy these homes,” said Caroline Nagy, deputy director for policy and research at CNYCN. “But when they get in the hands of flippers, that becomes much less likely.”

New York could dampen the flipping surge by hiking taxes on speculative transactions, creating cease-and-desist zones to discourage aggressive real estate speculators, and boosting foreclosure prevention efforts, to keep distressed New Yorkers in their homes, CNYCN’s report said.

Rising prices also act as a deterrent. Jonathan Miller of Miller Samuel attributes recent declines in the total number of Brooklyn flips to the nearly 50 percent surge in median prices over the last seven years, the fastest growth of any borough.