Is New York a good market for house flippers? Where should they invest? Our article has an overview of the New York housing market, including price appreciation trends and the best cities for investment, with information on the numbers you should know to get the best deal.
Even the most casual viewer of home improvement networks knows about house flipping. The process of buying a neglected home cheaply, fixing it up, and selling it for huge profits has captured America's imagination. But flipping houses is a lot harder than they make it look on TV.
A lot of things can go wrong, from unexpected repairs to a dip in the local housing market to a rise in crime rates in your area. And if the flip doesn't sell in your expected timeframe, you can wind up losing rather than making money.
It's wise to assemble a team of professionals to help make your flip profitable before buying. A realtor to help you find potential properties is essential, and they can put you in touch with local contractors and loan officers to help make your project a success.
2019 New York Housing Market Analysis
When looking at the median home values in New York State, don't forget how the Big Apple skews almost all state-wide metrics. Median home values in the state overall are $294,200. They rose 5.2% last year and are predicted to rise another 4.1% in 2019.
But median home values for homes in New York City is $681,000, more than double the state's median value. Obviously, where you choose to flip a home in New York will have a big impact on its price and eventual profit.
In Albany, the median home value is $169,500, which was a rise of 1.5% year-over-year. Homes in Syracuse are worth almost half this amount, with median home values of $87,200, but median home values grew 6.0% last year and are expected to grow another 4.2% this year. Yonkers home values are at $507,900 after rising 5.4% in 2018.
There is a wide spread between the cost of homes in New York, and this will matter to your real estate investment plan and eventual profits. Before picking a city in which concentrate your search, partner with an experienced, local agent who can help you locate the best investment areas.
How to Tell if a New York Property is a Good Investment
Overpaying for a potential flip starts you off on the wrong foot. Look for homes that are underpriced when compared to the overall neighborhood's housing stock.
Analyze the home's current condition before thinking about adding it to your fix and flip portfolio. Walk away from homes which require major structural repairs such as roof or foundation work, no matter how cheaply they're priced. These types of repairs can take longer to fix, requiring you to hold the house longer, and that eats into your margin. You want to find a “cream puff,” a home that primarily needs cosmetic repairs.
Your Clever Partner Agent will prepare a free comparative market analysis on nearby homes. The data they compile on recent home sales and how quickly they sold can help when planning your potential timeline and profit. Expert guidance from an experienced real estate agent helps novice flippers make sound investment decisions.
How to Turn a Profit When Flipping a New York House
You may fall in love with the built-ins, or picture a great entertainment space in the basement, but always look past your emotional feel for a home and crunch the numbers. Remember, this is an investment, not a home that you plan on living in.
Over time, successful real estate investors have developed the 70% rule to guide purchasing decisions when looking at flips. They've found that if you always pay less than 70% of the home's after repair value or ARV, less the cost of repairs, you have better luck making a profit.
If a home in Albany is worth $169,500 after repairs, multiply it by .70 to get $118,650. Then deduct a $20,000 estimate for repairs, and you'll have $98,650. According to the 70% rule that is the maximum you should pay for the house and you'd be wise to try to pay less.
Written out as an equation, this would be $169,500 (ARV) x 0.70 = $118,650 – $20,000 (repairs) = $98,650.
This is one of the first equations you should calculate before deciding to even tour a potential property. If you can't buy a flip at a price that fits the 70% rule, look at other areas.
Another good ratio for every investor to have in their tool kit is return on investment or ROI. It's a percentage that shows the amount you'll make from the money that you invest, and if you're going to take on a lot of risk it should be higher than what you'd make in the stock market. To calculate it, take the investment's current value, subtract its cost, then divide the remaining amount dividing by the investment's cost.
With the hypothetical house in Albany, it would be $169,500 less the cost of $138,650 for the mortgage and repairs, divided by the $138,650 for an ROI of 22%. This is a simple example, when calculating actual ROI for a specific property, don't forget to add in realtor's commissions, closing costs, and any loan payments during the time you hold the house to your expenses when subtracting and dividing.
Working with a low-commission realtor, however, will help you save on costs.
Paying Cash vs. Taking Out a Loan
Above all else, the first step to making it as a flipper is to buy your first property. Flippers can take advantage of many financing options, from traditional mortgages to HELOCs, or loan products designed for house flipping, but each of them will impact your deal's numbers in different ways.
Fix and flip loans are offered primarily by hard money and alternative lenders. Some banks will work with experienced flippers, but typically only on much larger deals. These are short-term, often interest-only loans, and have higher rates than traditional mortgages because the lender is taking on more risk. Interest rates start at 12% and rise from there, so you will want a clear exit strategy.
While traditional lenders will lend mortgages and home equity lines of credit to buyers with excellent credit and cash for a down payment bank loans take months to go through underwriting. By that time, someone else could have beaten you to the deal. You'll need at least a 20% down payment with a bank, and if the bank requires interest paid upfront the deal may no longer be profitable.
In a perfect world, every flipper should pay cash for their investments. Cash mitigates many of the risks of flipping. If market conditions shift while you're making repairs, you can afford to wait to sell until it's once more in your favor. While your cash will be tied up while you own the home, you won't have to reduce your profit by loan payments. And, once it's time to sell you can wait until you get a good offer rather than feeling pressured to sell at a loss to pay off your financing.
Taking out a loan increases the risk in your investment. Let's say you purchased that house in the Albany example above. You paid $138,650 in a mortgage and with a renovation loan. Your rough monthly payments for this financing could be around $1,400-$2,000 depending on the loan product.
Repairs cost $6,000 more than expected, delaying the time until the house on the market, so you've now paid four months of payments instead of two. Then it takes six months to sell the house when you'd budgeted for three. Your numbers now look like this;
- Purchase loan $118,650
- Renovation loan $20,000
- Estimated payments $14,000
- Extra repairs $6,000
- Closing costs of 2% = $3,390
Netting you a profit of $7,460, when you'd planned on a profit of roughly $38,500. That's a large difference. Do your best to plan for the unexpected, and if you can, pay cash.
3 Best Cities in New York for House Flippers in 2019
Trying to figure out where to buy your first flip in New York? Start by looking at Yonkers. It made WalletHub's list of Top 150 Cities to Flip Houses in 2018, in part because while median homes are expensive, they're still cheaper than neighboring New York City.
Rochester, NY, also made the list. The median home value is$73,800, and after dipping slightly in 2018 are rising again. It's economy is the second largest in the state, but the still-reasonable housing prices make it an ideal city for a first-time flipper who doesn't have much cash to invest.
Buffalo has a hot housing market. Median home values went up 15.0% last year and will go up another 11.2% in 2019. Median home values are $86,000, which is a fraction of the cost of investing elsewhere. Millennials have been the largest demographic moving into the area, and as they settle down and start families they drive housing demand.
Next Steps for New York House Flippers
There are more numbers and spreadsheets involved in successfully flipping a house than you'd think, and beginning house flippers should work with an experienced agent to help them when calculating an investment's return and all the math that goes into buying a good investment.
Because Clever Partner Agents work for much less than a realtor's typical commission your costs won't take as big a bite out of your profit. Our full-service agents will market your property to get you a top price and guide you through the selling process. If you're ready to learn more about flipping houses in New York, contact Clever today and talk to one of our local agents.