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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2010

A Look at NYC's Active Fix-and-Flip Market

New York City provides many opportunities for those who mitigate risk

In the past six to 12 months, New York City's five boroughs — Manhattan, Brooklyn, Queens, the Bronx and Staten Island — have proven to be some of the most-lucrative fix-and-flip residential markets in the country. While the foreclosure crisis affected almost all cities nationwide, New York's volume of distressed property and qualified borrowers is leading to significant opportunities. But with great reward can come great risk.

Given the number of players and the intricacies of local market forces, the boroughs can be hypercompetitive and difficult to navigate. To find success, mortgage brokers and their partners, including investors and developers, must understand the city's dynamics, including which boroughs are seeing the most residential rehab activity.

Several factors distinguish the city's real estate market from the rest of the country, including:

  • The foreclosure pipeline;
  • Investor makeup;
  • Property types; and
  • Financing.
  • Foreclosure pipeline

According to RealtyTrac, New York City and its environs saw a 17-percent decrease in foreclosure filings in the year ending this past third quarter. Considering the decline, you might wonder why the city is ripe with distressed-property opportunities. In short, the city has one of the slowest foreclosure processes in the country.

This, coupled with recent slowdowns related to documentation issues, has created what many local experts believe is a large shadow inventory of foreclosures. Many market participants don't believe that inventory will clear anytime soon. If they're correct, a steady trickle of foreclosure opportunities could exist for years to come.

Investor makeup

Many developers eager to capitalize on boom-time deals gone bad have become increasingly aggressive in New York City. Some use multiple channels to acquire distressed property. A few popular methods include:

  • Making connections via estate sales;
  • Following multiple listing services closely;
  • Attending foreclosure auctions; and
  • Buying nonperforming loans.

Savvy investors and developers pick their properties wisely. They focus on prime locations and neighborhoods that were hardest hit, including South Jamaica and St. Albans in Queens and the northwest corner of Staten Island.

Property types

Queens was the hardest hit of the five boroughs. More specifically, neighborhoods in southeast Queens have led the city in foreclosure activity each month dating to 2006.

From an investor standpoint, multifamily, mixed-use and single-family attached properties are generating the most interest in Queens.

Multifamily and mixed-use projects in Brooklyn also are hot. Brooklyn experienced about 550 to 600 foreclosure notices per month this past summer. On Long Island overall — which includes Brooklyn and Queens — single-family residences represent many of the distressed-property opportunities.


Many developers find it difficult to get financing despite the present opportunities. For example, a developer recently purchased eight unfinished triplexes on the Queens border. Based on the properties' location and condition — and on the developer's target listing price — the project appeared viable. Obtaining financing through traditional channels, however, was all but impossible.

After closing a $2.5 million bridge loan to complete the build-out and to market the properties, the developer sold all the units. Without the hard-money loan, however, this developer likely would have had to abandon the project.

Finding success

With so many factors at play in New York City's fix-and-flip market, brokers must have a strong stomach to enter. Following three guidelines can help yield lending success when working with investors in New York and nationwide:

  1. Have an exit strategy. Before helping investors purchase anything, explain the importance of making sure the property will be financeable when it hits the market after rehab. A luxury home, for example, might seem like a great property, but if subsequent buyers can't qualify for a loan to buy it after renovation then investors will be stuck with it. Help investors take a hard and hyperlocalized look at each property they wish to purchase.
  2. Cast a wide net. Don't be shy about promoting your interest in working with investors. They're looking for you, too, especially if you can deliver financing for short sales or other distressed properties, including those sold at auction. Brokers who can originate conventional and bridge loans can work with developers initially and later with buyers who purchase the rehabbed properties.
  3. Be choosy. Be upfront about which investors will qualify for investment loans and which won't. Many investors and developers don't have the knowledge or resources to succeed with fix-and-flip properties. The sooner you figure out your most-qualified clients, the better.

In today's market, New York City is one of the best and most exciting places to be in the real estate finance business. Mortgage brokers who enter the market with the right know-how can manage the risk factors wisely and discover huge financial rewards.


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