You don’t need to be a millionaire to make money as a real estate investor in the Hamptons
While property in the East End has certainly gotten pricier, opportunities still exist for the small investor who doesn’t shy away from the challenge of turning a shack into a fashionable cottage. In much the same trajectory of gentrification that pushes up property prices in the city, growing numbers of renovated shacks are transforming some formerly undesirable areas into emerging hot ones.
“Many more people are looking for shacks, tear-downs, and re-dos,” says Tina Fredericks, president and owner of Tina Fredericks Real Estate. “You have to be quick because they do not stay around on the market too long if they are real bargains.”
When asked where the small investor should look for deals, nearly every agent interviewed topped their list with Flanders, a village sandwiched between Hampton Bays and Riverhead. In 2000, the median price for a home in Flanders was $82,500. The median price as of last month was $370,000, a 19 percent jump from last year, according to Suffolk Research Service Inc.
Those prices are a bargain compared to the median sales price of $1.17 million for all of the Hamptons at the end of 2005, up from $1 million the year before, according to the Corcoran Group.
Flanders has been a blue-collar community with seedy pockets that were frequently the site of drug dealing and petty crime. Now people are looking for different kinds of deals as property hunters flood the town. Some of these small-scale real estate investors have their eyes especially open for foreclosures.
“Some people might think you wouldn’t have foreclosures anywhere in the Hamptons,” says Enzo Morabito, a broker at Prudential Douglas Elliman. “We do, but they can run the range and go high six and even up to seven figures if they turn into a bidding war.”
If you are looking to build in Flanders, prices for raw land, of course, come cheaper than houses — the average price for a lot in Flanders was $25,000 in 2000 and is now $150,000.
Small investors may also want to forgo the Hamptons entirely and head up to the North Fork, where towns like Southold can be a comparative bargain.
In 2000, the median price for a home in Southold was $203,000 and has since doubled to $550,000, according to Suffolk Research Services.
“You cannot find that on the South Fork with the exception of Hampton Bays,” and more remote areas like Flanders, says John Halsted, a broker and office manager at Alan Schneider Real Estate.
Even cheaper North Fork locales include Mattituck and Greenpoint Village. If you want to stick to the Hamptons, East Quogue and Hampton Bays have some of the best values (see chart).
Many deal hunters are not concentrating on the traditionally less desirable areas, and instead are taking the “worst house on the best block” approach, searching for the shacks and eyesores in the reputably higher-end communities.
For example, Richard Maio, a broker for Prudential Douglas Elliman, found a two-bedroom, one-bathroom house in Amagansett for $830,000, which he considered a true deal.
The cottage on one-third of an acre overlooks an old farm with a yard of weeds and fallen trees. He plans to pour in $200,000 worth of renovations, which will include a swimming pool.
“By the time we are finished with the renovation and expansion, it will be worth well over $1 million,” he says. “The key to buying in the Hamptons now is vision. You have to have the vision to know that eyesore today can be a hot property tomorrow.”
Gentrification from the ground floor
Four years ago, Tim Morabito and Ray Springsteen started Sublime Flooring in Manorville — on the outskirts of the Hamptons. Initially, they kept their day jobs. Morabito worked part-time in his father’s real estate office at Prudential Douglas Elliman and as a supermarket clerk to pay bills. Springsteen kept his union card and did flooring jobs in the city.
These days, largely due to the growing number of Hamptons buyers that are grabbing bungalows and shacks and turning to companies like Sublime for the renovations, the outfit has grown into a seven-day-a-week operation with four employees. “It has completely taken over,” says Morabito. “We are going nonstop.”
“So many people are buying older houses and completely gutting them and adding on,” said Enzo Morabito, who started the North Fork office for Prudential Douglas Elliman a few years ago and who encouraged his son, Tim, to start the flooring business and focus it in the Hamptons, where the firm does 80 percent of its work.
Tim is also buying and rehabbing properties himself as a side business.
Last November, he found a foreclosure in Hampton Bays. He and a business partner paid $210,000 for the three-room ranch. They gutted it and gave it a new life — with new windows, vinyl, and cedar shake siding and, of course, new hardwood floors, with borders and medallions. Four months later, they sold it for $425,000.
“We put $50,000 into the renovation,” Tim Morabito says. “That was doing the labor ourselves. It would have cost around $70,000 if we had the renovations done by someone else, and still [we] would have walked away with a profit.”