Flippers in Manhattan

first, how do you 'define' a flipper?

Personally I would say a flipper is:

Person who purchases a property for the sole reason that they expect the property to appreciate rapidly. This includes people who just buy an 'VERY overpriced' apartment relative to rent, live in it for 2 years to resell

I would define it as someone who buys a unit with no attention of moving in.

What if someone buys a unit and rents it for 10 years, and then his kid moves in and instead of paying rent on a side, pays it to his dad. Would such a person be considered a flipper?

elena
(broker)

barskaya- I would never consider that a flipper.

I think time is the essence here. I think a true flipper does not even want to be a landlord. It is just that when their asking prices are not met, they park their apt for rent, hoping the market improves next year this time

Here is one which the seller paid $1.6mm and hope to sell for $2.2mm. (now also available for rent at 8k a month: 23x the annual rent)

http://www.streeteasy.com/nyc/sale/300831-condo-250-east-53rd-street-sutton-place-manhattan
http://www.streeteasy.com/nyc/rental/380795-condo-250-east-53rd-street-sutton-place-manhattan

Slee- I would agree with you 100%. If they can't sell, they will try to rent in order to cover cost. The problem in this market is, that rentals are also going down in price. These new developments are going to see very large number of renters in the future.

Another problem is that when you only put down 10%, the cost to cover your expenses per month will be very difficult if not impossible. Eventually you will see people taking big loses from these developments.

I'm guessing that the market is accumulating a good number of properties that will be sold "once the market improves." That means there will be gradual selling pressure for years to come (and any price bounce would be quickly met by new inventory).

What if people buy a unit, renovate it and resell?
What if people buy a unit, live in it for 2 years to avoid capital gane tax, and then resell at a profit?
What if people buy in order to live in it (they wants to be a landlord), but because of unexpected surcomstanses (let's say husband got transfered overseas and they don't want deal with tenants) so they have to resell, are they flippers?

barskaya- My guess is that you don't think there were flippers in the NYC RE market. I would expect nothing less from a member of the NYC RE Marketing Machine". As a broker you know exactly the difference between a flipper and another buyer. It known as "intent". If you truly don't understand the difference, it would explain how the market was artificially inflated.

per shows on the learning channel and TLC, that would be the precise definition of a flipper. Am I missing something?

I agree with Slee/dco 100%. I think there are a good amount of said flippers out there, many of which are real estate brokers themselves who bought in on an inside tip hoping to flip out to their own customers/capture the "exclusive". Uh oh. But I would also consider a few of the buyers who bought maybe 2 years ago (roughly) and paid close to top dollar but now things have turned and realize they may have over extended themselves on the credit side (or maybe lost a source of income)...and are now trying to dump the apartment and rent for a while until things clear up. Maybe even buy back at a cheaper price. Just get the asset off the books and reassess the situation once the smoke clears. Too many people are trying to "trade" real estate and like any illiquid security once things go south it is a race for the door. Also the European buyers who had been holding up prices and the NYC real estate market are now looking to sell. They are ok b/c they have a currency hedge but just adds more supply and no longer bidding. People are lowering their offers but still seeing the $1,350/sq ft price range. That is insane in my opinion. In order to move something in this market it better be closer to $1,100/sq ft if not lower. We're going there anyway and might as well just sell it now so you don't keep on carrying the monthlies. Sellers need to accept they have made a mistake and sell the loser. Hardest thing to do sometimes. It will come.

dco - Don't see anything in barskaya's comments to indicate she doesn't think there were ever NYC flippers (member of the Real Estate "cartel" here). Looks like she was raising different scenarios, and we can all judge for ourselves whether they represent flipping, or not.

Respectfully, I think it's more than intent. People intend a lot of things, but often those things never come to pass. And timeframe certainly has to be a criteria. My definition? Someone who plans to (and does) purchase a home / apartment for the express purpose of reselling at a significant profit in a relatively short period of time. To me, it doesn't matter if they've ever moved in, or not. Or if they've ever had a tenant.

But honestly, who cares about some arbitrary definition? One man's flipper is another's man's investor. The distinction doesn't seem nearly as important, say, as owner-occupier vs investor, or primary residence vs second home. These are distinctions that have real meaning in the real world.

I thought a flipper was someone who put down a deposit before the building or subdivision was ready to be occupied, with the sole purpose of finding a buyer to sell it to on the day of their own closing, or very close to it, so that they pay not a single mortgage payment.

nycREjunkie-- Very well said. I also agree 100% about the brokers. I'm sure there are a lot of them that are going to get caught with their pants down. Also renting a unit doesnt automatically make everything great.

If you put say 10% down and your carrying cost is very high, it's a very good chance that you will never be able to rent that unit to cover cost. On a $1M unit, a $900,000 mortgage and CC's is going to be much higher then the rent would compensate.

So the question is, How long do you hold on to a loser? Especially if the market is not going to increase for years. With a $7,000 nut and rent paying you $4,000, how long do you take the $36,000/year lose.

lowery - that's one flavor of flipping, but it extends way beyond the (former) new construction fever - witness all the house flipping programs on cable. It's interesting that all the newer episodes - as well as reruns of programs from several years ago - now make reference to the pitfalls of flipping. It seems like in the older shows, everyone was a winner. In the newer episodes, everyone's getting burned.