flipped early, Lion’s Head loft later gains only 4.8% since 2006

not much left over
The first re-seller of the Manhattan loft #8D at 121 West 19 Street (the Lion’s Head) soaked up nearly all the appreciation in the unit by flipping in two months in 2006, compared to the July 2006 buyer, who sold 3 weeks ago at a small (gross) gain.

That first buyer paid $1,008,067 to the sponsor on May 8, 2006 and immediately put it on the market at $1.25mm, closing at that price on July 26, 2006. Even after paying transfer fees and other expenses on the sale (the recorded purchase includes the buy-side transfer taxes), that seller pocketed six-figure cash after putting down just over $200k (Property Shark shows the original mortgage, in place for less than 6 months, was $792k). The second re-seller closed on May 11 at $1.31mm, reflecting (very) mild appreciation but a loss after sales commission and transfer taxes.

large 1-bedroom
At “1,134 sq ft”, #8D is a relatively large 1-bedroom layout for a 2006 new condo development. The floor plan supports only that single bedroom, as the only windows are on the south wall, a relatively long way from the common hallway. (The “F” line is over 1,300 sq ft, also with only 1-bedroom, one bath, no den or office.)

some cash along the way?
I can’t tell if that net-loss from July 2006 to May 2011 was ameliorated by a positive rental income or not, but it might have been, as our data-base shows a new lease beginning July 6, 2006 — just 2 days before the contract to flip was signed. Unless someone bought out that tenant, there’d have been some income, for some time. Let’s play with some of those numbers….

That first rent was $4,900/mo as of July 6, 2006, possibly surviving the July 26, 2006 sale, and possibly renewed (and raised) since then. That $4,900/mo did not go very far, with an original mortgage of $937,500 at 6.375% (roughly, $5,500/mo) and original common charges and taxes of $945/mo. Negative cash flow to start: about $1,500/mo. If the tenant stayed and if the rent was raised to market, the cash flow got better.

That July 2006 buyer refinanced in June 2008 to $625,000 at 5.375% ($3,500/mo), at a time when our data-base shows that #7D had been rented at $6,200/mo so there was a lot more room then for positive cash flow, as monthly common charges and taxes were probably similar to #5D (then, $1,151/mo). Taxes and common charges have been going up since then ($1,772/mo as of the 2011 listing), but the lower mortgage and higher rent potential could have generated as much as $1,500/mo since mid-2008, $1,000/mo more recently.

Bottom line on this set of fantasy numbers: too many ifs, too little money. Assuming the July 2006 buyer kept a tenant in place and achieved market rents, cash flow was negative until the new mortgage hit in June 2008, and probably more negative for those first two years than it might have been positive in the almost 3 years since.

I hope the July 2006 buyer did not buy to generate positive rental income. Or to sell for a profit.

© Sandy Mattingly 2011