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The ABCs of house flipping on Long Island

Investor Frank Catalanotto , known as Little Cat

Investor Frank Catalanotto , known as Little Cat during his pro baseball career, renovated this Dix Hills house, which is on the market in September 2016 for $979,000. Photo Credit: Rob Cuni Photography

Home flipping — when investors buy and renovate rundown properties, selling them quickly afterward — is at a nine-year high on Long Island.

There were 323 flipped homes in Nassau and Suffolk counties during the first three months of 2016 and 316 flipped homes in the next three months of the year, both the highest numbers for the combined counties since the last three months of 2006, when 362 were flipped, according to Attom Data Solutions, the real estate data company formerly known as RealtyTrac.

“We did see overall a nationwide increase in home flipping across the board,” says Daren Blomquist, vice president of Attom, which is based in California. “But Long Island stood out. There was a more dramatic increase.”

Blomquist says that lingering foreclosure activity on Long Island, combined with a market that’s in recovery mode, is leading to more people scooping up distressed properties and taking advantage of increasing home prices. The foreclosure process in New York takes, on average, 1,000 days, the second-longest of any state except New Jersey.

Home flips on Long Island also return the highest return on original investment, with homes flipped in the second quarter of this year generating an average return on original investment of $151,000 per flip in Nassau County and $102,000 per flip in Suffolk County. The national average was $62,000 per flip.

KNOW THE MARKET

Helena Veloso, a sales manager for the Williston Park and Franklin Square offices of Douglas Elliman Real Estate, has 20 years of experience in flipping two to four homes a year with her husband, Luis Veloso, who works in construction.

“The key to flipping is you have to know your market and the value of that particular town and what it can bring,” Veloso says. “You put in a new kitchen, new floors, that house is going to stand out like a shiny penny, as long as you price it reasonably well.”

Veloso and her husband are in the process of flipping two homes in Westbury. One, a 1,700-square-foot cape that they purchased for $305,000 in the East Meadow school district, is on the market for $469,000. The Velosos spent $60,000 to renovate the bathroom, install new floors and siding and turn one large space into two separate rooms.

The Velosos also purchased another Westbury cape in the Carle Place school district for $250,000. They are investing $200,000 in a rebuild and expect to put it back on the market in a few months for at least $750,000.

In 2011, William Waters left as a partner in a computer forensics and data management firm to get into the home-building business. He partnered with Bob Nolan and now works with people looking to flip homes while also investing himself for a company called BMV Builders, based in Wantagh and Manhattan. Waters, who often works on the South Shore, in Bellmore, Wantagh and Massapequa, says knowing what to pay for a home you’re flipping is very important.

“In any area, look at the market and the land and find something a typical home buyer is not willing to buy either because they can’t afford to renovate it or don’t have the expertise” to renovate it, Waters says.

Home flippers, like any other investors, are seeking the best return on their investment, even if it means building new as opposed to a renovation, Waters says. For a project Waters recently undertook on a canal in Merrick, it would cost close to $400,000 to renovate the home, purchased for $300,000, or $450,000 to build new. The renovated home would have sold for $850,000, while the newly built home would have sold for close to $1 million, Waters says.

Veloso says flipping is possible across Long Island in any market, but is especially popular now, as inventory is low.

“It’s at the highest point because the market went up pretty high,” Veloso says. “In the time it takes to fix a home, the price keeps going up. When the market is down is the best time to flip, but the average person doesn’t do it at that time.”

BEWARE OF THE LOSSES

There are certainly pitfalls. In the second quarter of 2016, two dozen of more than 280 flipped homes in Nassau and Suffolk counties lost money, including one in Riverhead whose investor lost more than $203,000 for a property bought for more than $453,000 and sold for $250,000, says Attom.

“At the individual level, it’s a high-risk, high-reward venture,” Blomquist says. “You are going in and counting on the market to continue to behave the way that it’s behaving. If that changes, you can get caught with a loss. Even though we see on average an over 60 percent return, when we dig into the individual flipping records, there are definitely situations where people are losing a lot of money.”

Blomquist says losses are usually caused by paying too much for the house in the first place, under- or over-renovating the home and making it too nice for the neighborhood, and overestimating how much the market is going to rise or fall while owning the property. A good rule of thumb, according to Blomquist, is to try to buy at least 30 percent below the property’s full market value if it was in good condition and sell at 1 to 5 percent above what comparable properties in the neighborhood are selling for.

WHERE THE FLIPS ARE

The Suffolk County hamlet of Brentwood was Long Island’s most popular place for home flipping at the beginning of the year, with 10 homes flipped in the first three months of 2016, according to Attom Data Solutions.

Nearby Central Islip came in second, with nine flipped homes in the first quarter, while Hempstead, Levittown and Bay Shore tied for third place, with eight homes flipped during that time.

In the second quarter, the flip with the biggest price tag took place in the Hamptons, where a six-bedroom, 4 1/2-bathroom Quogue home sold for $5.25 million, earning a return on original investment of $106,000, or a 2 percent return on investment, according to Attom.

The largest return on original investment in the second quarter came in Seaford, where a four-bedroom, 2 1/2-bathroom home sold for $775,000, making $581,000 return on original investment, or a 299 percent return.

— LISA CHAMOFF

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