Several years ago a listing for a 900 sq ft two-bedroom in our neighborhood caught my eye. Back in September of that year
the same unit on another floor sold for $230k. Why the giant price differential? The latter was a wreck, indeed, as these side-by-side photos show. Fast-forward a few years and a relisting caused a flurry of speculation in the real estate community of the
Jackson Heights Life forum. Did someone "flip" that wreck? It brought up a good question: Can you even "flip" in New York? The answer is no, at least, not in the conventional sense.
In the conventional sense a "flip" is bought and sold quickly and sometimes not even renovated. In the heady days before the housing bubble of 2008 in Northern California, where the combination of high tech salaries and low housing inventory were inflating the market—still are, in fact—a savvy flipper who got in first with an all cash offer could turn around and put the home back on the market for more money a few days later without even touching it with a paint brush. And that is where the term flip came into recent "home show" vernacular, though the concept has been around for as long as property has been bought and sold.
In New York City, several realities make flipping near impossible. 1. Most residential real estate in NYC is in the form of a co-op, in which you are actually buying shares in corporation that is "the building" and it is governed by a board of directors. 2. The paperwork and approval process to buy a co-op apartment takes at least 3 months from contract to close, sometimes much longer. 3. Generally the buyer is making promises (both to the board and to the lender) that they intend to live in the apartment and that it will be their primary residence. There are a few exceptions; some boards allow pied-à-terres—"secondary homes," which very often adult children of the buyers may also live in. In any case, quick turnaround is not likely. 4. And, finally, most co-ops impose a "flip tax" on the seller that takes a portion of the profit off their sale—in our neighborhood flip taxes can be as high as 50%-75% of the difference between the sales price and the purchase price. So flipping not only not feasible, it's often not very profitable.
The Towers 2BR that had sold for $230k would more accurately be called a "fixer upper" or a "handyman" special or in more refined circles a home in "estate condition" (think Gray Gardens). As a renovator, those are all terms that catch my eye. Few prospective buyers are willing to take on a renovation of that magnitude, so competition for such a property will not be high. This puts me in position to make a low offer and have it accepted. Again, I'm not flipping; I'm looking for a home I can fix up and live in—not just any fixer upper, but one that is a good value.
So, how do you know a good value? Often by looking at other apartments in the exact same "line" that sold for market price.
That wreck in the Towers was just the kind of property I look for, and looking at them side by side with one in the same building and with the same floorplan that sold for so much more will show you why.
Living Room:
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| NY Times | RedFin |
Dining Room:
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| NY Times | RedFin |
Kitchen:
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| NY Times | RedFin |
Bathroom 1:
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| RedFin | NY Times |
Bathroom 2:
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| RedFin | NY Times |
Bedroom:
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| NY Times | RedFin |
Though the "wreck" looked like a money pit, the renovation probably wasn't all that costly. From what I know of it, the Towers is a very well-maintained co-op, in good financial standing, with a strong co-op board. So we can assume the building will have a solid foundation, a well maintained roof, and mechanicals in good working order. There were not likely serious structural issues hiding behind those decrepit walls. The hardwood floors would look great after a standard refinish. And there remained some incredible period fixtures in the bathrooms that might be salvaged. You were probably looking at some framing and wallboard to close up weird openings, plaster and skim coating, electrical upgrades, regrouting and reglazing two bathrooms, and a full-scale kitchen build. Renovating this place would run you about $100k—and given the price differential between this wreck and the pristine home at market value, you'd have hundreds of thousands of dollars in instant equity.
The Towers is one of the loveliest prewar co-ops in Jackson Heights; I've visited friends who live there many times. Most of the graceful floor plans are what are called "classic sevens"—that is, living room, formal dining room, a master suite with bathroom, two additional generously proportioned bedrooms plus a "maid's room"—a tiny bedroom with it's own small bath. Four bedrooms, three baths all told.
But the two-bedrooms we are looking at here are not the usual layouts. They were created back during The Depression, when even buildings like the Towers fell on hard times and had to split up some large apartments into smaller apartments. Once sold cheaply 80 years ago, these two-bedrooms are a great investment now.
You can't flip this home, but you can buy it, fix it up to exactly suit your taste, and it will be worth far more than you put into it.
What's the conventional wisdom? Better to own the smallest house on the most beautiful block? In Jackson Heights that might translate into better to own the smallest apartment in the most sought-after building. Especially given the grand scale of the rooms and some of the architectural detail.
Update: 2/13/21
As it turned out, the purchasers did indeed gut renovate the wreck, and when they eventually sold it years later they made a tidy profit. About 2-1/2 years after purchase it was put on the market for $785k (August 2017). It didn't sell at that price and was taken off market for a while, then relisted again in November of 2018 for $725k. Again, it didn't sell and was removed for another year and relisted again in January of 2020 at $685k. Third time's the charm! The home was delisted and relisted at the end of 2020 at $665k, and this time it found a new purchaser.
The sellers had done a nice renovation, including a white granite kitchen that's particularly lovely.
So, what was the issue that saw them constantly lowering the price? They had tried to create a "dining area" in a very narrow hallway that's blocked by a column. A more elegant fix for that would have been to fill from column to wall, and have a banquette and table custom built for the space—in the same look and feel as the kitchen. This would make the dining area look more intentional and the bench seating would save space. As a bonus, it would also mean the second bedroom could get a proper door (barn doors offer little privacy and zero noise muffling).
In any case, it is a beautiful home and the sellers were able to sell it for more than they put into it. Five years is not a "quick flip" by anyone's standards, however, the investors definitely saw a nice return for their efforts. $665k is at the high end of market rate for a 2/2 without a true dining room in this neighborhood. The original price was $230k and the renovation I'm estimating was about $100k; that gave the renovators a roughly $435k profit—after six years of living in a beautiful home.
The Towers is architecturally stunning and has a beautiful private garden.
The apartment price in Jackson height has increased quite a bit during the last six years. It’s probably 50% increase without doing anything. So the profit of 400k has 150K from the price increase, and 100K for the renovation cost and the remaining 150K is pure profit
ReplyDeleteThat's right. They could have simply done nothing and they'd have made a tidy profit!
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