Long Island Home Flippers Sell to Each Other in Red-Hot Market
(Bloomberg) -- Michael Pinter’s dream day would be buying a house in the morning and selling it the same afternoon for a $25,000 profit.
In the world of home flippers, Pinter is known as a wholesaler. He employs a team based in the Philippines to help bombard potential sellers on Long Island, New York, by phone, social media and direct mail. When his contractors find a homeowner who wants to sell fast, Pinter jumps in to close the deal.
Once he has a sale, Pinter puts his marketing machine in reverse, blasting emails in search of an investor to buy the home for more than he paid. These days there are plenty of them, as rising prices and reality TV shows like “Flip This House” and “Flip or Flop” draw rookie investors into the action.
“People are watching HGTV and hearing from different gurus about what they should be doing,” said Pinter, a partner at LMPK Properties in Hewlett, New York. “Very often someone who’s hungry for their first deal will pay more. If we’re averaging $20,000 to $30,000 profit on a house, an extra $10,000 is a big deal.”
Few markets are more copacetic to flippers right now than Long Island, whose 2.8 million residents live in a range of socio-economic groupings, from traffic-clogged commuter communities to lunch-pail fishing towns to the opulent beach hamlets of the Hamptons. Last year, investors accounted for 19% of sales, up from 12% in 2016, enough to give it the fourth-largest share among U.S. metropolitan areas, according to CoreLogic Inc. Detroit, Philadelphia and Memphis are the top three.
Unlike Atlanta or Phoenix, where institutional investors built billion-dollar portfolios of rental homes after the 2008 housing bust, Long Island’s boom in investor sales is driven by a growing number of small-timers trying to take advantage of a shortage of starter homes.
Long Island foreclosure sales doubled over the last five years as the county courts made a priority of clearing bust-era cases. The housing market has been strongest at the low end, according to data from Miller Samuel Inc. and Douglas Elliman Real Estate. Median prices increased 9.5% for the cheapest homes in the second quarter of 2019, and decreased 2.1% for the most expensive properties.
“There’s not a lot of homes being built and there’s an aging housing stock,” said CoreLogic economist Ralph McLaughlin. “The market is presenting good opportunities for flipping.”
Pinter aims for returns equal to four times his marketing expenses -- a tricky calculation because, in reality, it can take months or even years for a seller to respond to his pitch. Depending on the condition of the home and the price he pays, Pinter may undertake renovations himself, but he prefers to complete a sale that allows him to profit without adding a coat of paint or hammering a nail.
Recently, he started hosting a monthly meet-up for real estate investors where he tutors newbies -- and adds them to his list of potential buyers.
America’s obsession with home-flipping plays on a lingering sense of economic insecurity that remains a central force a decade after the Great Recession, said Robert Goldman, a sociology professor at Lewis & Clark College in Portland, Oregon. On TV, months of hard work can be condensed into a few minutes of profitable decision-making. There’s little sense of risk, either for the flippers or the home buyers.
“My hypothesis is that there’s an obsession with how to find value,” Goldman said. “The old rules -- work hard, save money, invest -- seem to be flawed. Home-renovation shows are a way for popular television to address that obsession.”
Like Pinter, Bruce Dalis is a veteran Long Island flipper. He offers valuation services to other investors, charging $400 to give his estimate of how much money it will cost to repair a house and what it might sell for. The service is often a wake-up call for his clients, whose dreams of turning a fast profit can lead them into a fantasy world of cheap, easy renovations and quick, wildly profitable turnarounds.
“I’ll get a call, ‘I’m over budget, the lender is calling, what should I do, what should I do?’” he said. “I’ll white-knight them. I have cash available.”
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