East New York was named the top neighborhood in the Big Apple for home flippers in a report released this week by the Center for NYC Neighborhoods, a nonprofit with a goal to maintain affordable housing. In 2015, 94 homes were sold in East New York with a 105 percent median gross return, according to the report.
Because of the neighborhood’s high foreclosure rate and lagging rebound from the recession, East New York has become a hot spot for quick flips. The median resale profit in East New York last year was $272,308, the report says — one of the highest neighborhoods in the city.
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Overall, Brooklyn presented the largest gross returns from flipping of New York City neighborhoods, which created quickly rising property values. Cypress Hills had the highest return last year at 125 percent return on 32 home flips, followed by Flatbush-East with 117 percent return on 36 home flips. Bushwick was third with 106 percent return on 58 home flips. South Jamaica-Baisley Park featured 91 home flips with a 106 percent return.
Affordability an ongoing problem in East New York?
Meanwhile, East New York is a trending topic on affordability issues. On April 20, the NYC City Council overwhelmingly approved rezoning in a 45-1 vote. East New York will be the first neighborhood to undergo rezoning laws under Mayor Bill de Blasio’s $41 billion affordable housing plan.
As part of the rezoning plan, which was modified after the February sanction from the City Planning Commission, 1,300 affordable units will surface over the next few years instead of the initial 1,200.
In addition, zoning heights will be enforced on Fulton Street, Pitkin Avenue and Eastern Parkway. The city is also increasing the budget for a new elementary school, medical center, renovations for local parks and intersections from $100 million to $267 million.
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Apart from zoning, East New York will introduce mandatory inclusionary housing (MIH) laws, which allows builders to construct taller properties in exchange for affordable units. East New York includes the deep affordability option, which has 20 percent of housing at 40 percent of the area’s median income, which is $39,943 for a family of three.
Also included in the updated MIH plan is the extremely-low and low income affordability program, which says that the vast majority of units be set aside for families making less than $46,620 per year if developers choose to participate. Over 6,000 apartments will come about by 2030, half designated for below-market rate and a quarter set aside for families making under $31,000 per year.
According to Gothamist, more than a third of East New York families make less than $23,350 a year, leading many residents to believe rezoning and MIH will have a greater impact on luxury development than affordable construction.
Flipping in New York City
More than 1,800 properties were flipped across the city last year, according to the report. Many experts argue that home flipping in pockets can boost median values too quickly, creating affordability issues for the current owners and renters.
Flipping sometimes pushes home prices up beyond the pace at which the real estate market rises naturally, outpacing economic and wage growth, which means individuals in those areas can no longer afford the homes in their neighborhoods.
The Center found that in 2015, flipped properties in NYC produced a median resale profit of $215,000, or a 75 percent gross return. Some investors saw as much as 200 or 300 percent in quick sale returns.
While this is positive for investors, flipping presents a problem for homebuyers in the working and middle-class tiers. When homes are flipped to multi-family rental units, the Center says investors are likely to raise rents too high to profit on the demand in trendy neighborhoods.
In its Q4 home flipping report, RealtyTrac found NYC as the third-highest grossing metro in the nation, with $120,000 average profit. In Kings County (Brooklyn), specifically, the average return was 91.5 percent, which is an 89 percent year-over-year increase. Brooklyn widely outpaced Manhattan for returns last year, where home flippers faced a 46 percent drop in returns.
It’s important to note that flipping in general is understood as reasonable as long as it does not overtake a high share of home sales in any given market. The threshold is hard to define, and some markets were in the high teens and low-twenties for share of home flips before the housing recession, which is generally considered unhealthy by real estate experts.
Homeowners who believe they are at risk are encouraged to call 311 to connect to free, legal housing counseling.
