Halstead Property

Michael A. Goldenberg
Executive Director of Sales, Westside
mgoldenberg@halstead.com
(212) 381-2203

Meet The Flippers

Photo: Marc and Nancy Held, with their two daughters, in the apartment they’re currently flipping.

Marc and Nancy Held of the Upper East Side never live in one place for long. That’s because they’re experts at the art of the flip, or buying an apartment, renovating it, and turning around to sell it for a profit.” If the deal is right, we will find it,” says Held, who has bought and sold properties in all five boroughs, as well as in New Jersey and other parts of New York.

Although there are many ways to flip, Held and his family have a strategy that involves selling their primary residence every two years in order to take advantage of tax benefits: Under the Taxpayer Relief Act of 1997, a married couple who lives in a residence for two out of the past five years is eligible to make up to$500,000 in tax-free profit from its sale (singles are eligible for a $250,000 tax benefit). With two young daughters, however, the Held made the decision to always buy and sell within the same Upper East Side building, which they’re now doing for the third time.  “This makes the transition easy for the children,” Held says. “We simply move down the hall. It’s a unique way to flip while keeping some continuity in our lives.” Meanwhile, Held pursues other “immediate” flips with homes his family never moves into: instead, he buys, renovates, and quickly sells them (these flips, however, do not have the same tax benefits).

To be sure, flipping is a business, and if you’re not sure what you’re doing, it can be a risky one. But for those who are knowledgeable about the market—Held is a real estate attorney at Lazarowitz & Manganillo LLP, and in five years has never lost money on a flip—it can be quite profitable.

Good flippers need “guts and money,” says Jacky Teplitzky, managing director at Prudential Douglas Elliman and the Helds’ real estate broker. “You need to know how to renovate. You need a great real estate attorney and a great contractor.”  Flipping “is a very dangerous game,” she says, that “you have to be very real estate savvy” to play.

In terms of whether now is a goodtime to flip, that depends on how you interpret the market. Michael Goldenberg, executive director of sales of the Westside and Harlem for Halstead Property, points out that there’re many factors to consider, including the fact that every single neighborhood has its own individual market, such as” the one-bedroom market on the Upper East Side or the studio market in Murray Hill.” He adds, “Everything is local. Look at it this way: Flipping is a business. So, whether it’s the right time or not the right time to make any business decision is based on the individual facts of the situation.”

That said, Goldenberg predicts a decline in flipping compared to one or two years ago because, he says, it’s more difficult for it to be as profitable now.” It’s more difficult to get a mortgage,” he says. “You have to put more equity into your investments, which is why I think there will be significant decline in the flipping of properties.” He adds,” There are probably properties out there today that are worth buying and reselling immediately for a profit, but there aren’t a whole lot of them.”

With this in mind, he advises, “Two year flips rather than immediate flips are a safer bet right now.” With an immediate flip, there is time pressure involved: if you can’t sell the property right away, you are stuck paying for it as time goes on, and if you can’t afford to do that, you may have to lower the price in order to sell it (and run the risk of having to price it below what you originally spent).Whereas, with a two year flip, you can live in the home while you’re trying to sell it and wait for the market to improve and for the right price to come along.

Deanna Kory, senior vice president at The Corcoran Group, says, “In New York, every two years is probably more practical for flipping”—especially when you consider the high closing costs and broker fees. “So, for people who are trying to flip right away, you have to at least make 10 percent profit just to get your closing costs back” she says.

Once you do decide to move ahead with flipping a home, it’s important to get a detailed cost analysis. “We all know that there are going to be surprises along the way,” Goldenberg says. “So, it’s important to be prepared. You can always assume you are going to spend10 to 15 percent more than the figure quoted to you by your contractor.”

The key to a successful flip is making sure you have a good team behind you that you can trust. The hired professionals must be willing to work within the given budget and do quality work in (what is often) a short amount of time. Goldenberg warns, “Nobody should ever consider doing this before they have lined up their professionals and made sure they are going to help them make it work."

Renovating is typically a major part of flipping a home. “It’s difficult to make money if you don’t renovate, because you haven’t done anything to increase the value,” explains Kory. Held has become an expert by going through the aggravations of renovation time and time again. “Renovating is a frustrating and emotional experience. That’s why people will pay top dollar for a home that’s completely renovated,” he says. In his opinion, “The way to make money is to buy depressed houses or apartments that are in poor condition and, as a result, are sold for market value. You can do a $300,000 renovation for $150,000 if you buy smart and buy well. That savings will have a dramatic effect on your ability to make money on a flip.”  Buying smart, according to Held, means doing research in order to find the best prices on renovation materials. He recommends purchasing everything from tiles to appliances from wholesalers, and he also suggests buying out of state in order to avoid the high New York state sales tax. “Every little thing counts,” he says.

Goldenberg notes, “The main areas to focus on in terms of getting your money back are kitchens and baths, because those are the things that potential buyers know are going to be very difficult and very expensive to do.”

But for those who aren’t willing to renovate, staging is another option.  Kory says that some of her clients hire an interior decorator to help them restyle the apartment. It’s a great way to make a home look beautiful and “requires much less effort, money, and energy than a renovation,” says Kory. She says that, done right, it adds a “wow component” to get potential buyers excited.

Whatever your method for flipping, how you go about selling your home is just as important as deciding when to buy one. “You have to be careful about how you price it,” says Kory. “In flipping, sometimes it’s better to under price just so that the market will pick it right up. It’s important to remain flexible and go with the flow, because things are always changing.”

One thing that won’t change no matter what the market looks like: flipping is a business for those willing to take financial risks—and some emotional ups and downs. Held’s final advice? “Study your property for a long period of time before you even attempt to buy. You have to know the market conditions, you have to know the area, how much things go for per square foot, and how much your construction costs are.”  And make sure your family is on the same page as you: Held gives much credit to his wife for her efforts in keeping their flipping business successful.  “It’s a full-time job,” he says. “I couldn’t do it without her.”

Friday, February 01, 2008