The Flip Routine
Soaring real estate appreciation rates have attracted a new group of people to the condo circus: real estate buyers with a day-trading mentality. Just ask Charles Kirschner, who as director of Kirschner Realty International, has a number of good stories about today’s condo flippers.
There was the young real estate agent who wanted to tie up a property for his client, excitedly reciting how much money his buyer would make if he flipped the unit or rented it out. There was just a small problem: The agent’s numbers were all wrong. And Kirschner told him so. “This agent was putting him [the buyer] into a unit where he would have lost his butt,” Kirschner says. “A lot of these people are neophytes who watch too many infomercials or see friends make 30 percent return on their investment.”
The deal-making doesn’t stop there among the flippers. A contract may be sold three or four times before the unit even closes. There’s even a Web site, called condoflip.com (its motto: “Bubbles Are for Bathtubs.”), which lets buyers of preconstruction condos resell or assign those condos to new buyers. “There’s a whole game in New York right now where people are going to contract with nothing down and flipping it,” says Marvin Meltzer, vice president of New York City-based Meltzer/Mandl Architects. “Instead of the stock market, you’re now playing the real estate market. Let’s say the property is selling for a million dollars. You can probably flip it in two or three months and make at least 10 [percent] to 15 percent on your money with nothing down.”
This practice has led to some astronomical condo appreciations that make a unit impossible to operate profitably as a rental and sales price figures that have seasoned developers scratching their heads. “In some deals, I thought that to make a decent return as an investor, I would have to sell it for X,” says Roberto Roche, executive vice president of The Related Group, a condo developer in Coral Gables, Fla. “And I didn’t see people paying that kind of money. Well, guess what? It has done three times more than what I thought it would ever get to. And I’m in the business!”
Not surprisingly, apartment owners and developers alike are concerned about these buyers. “Builders are worried about speculation–how much there is and what it may lead to,” says Dave Seiders, chief economist for the National Association of Home Builders. “But it’s really difficult to measure true speculation.”
Anecdotally, though, there is plenty of evidence of flippers in the market. In Florida, Charles and Kim Kirschner can recount the story of one of their buyers who waited in line two nights to buy a condo. The man, who was interviewed in the local news, said he queued up for so long because at every other opening, he was beaten out by investors. “He didn’t even know the price,” Kim Kirschner says. “He just wanted a place to live.”
If these flip-oriented buyers get in financial trouble, it could lead to serious problems for condo developers. “Units could come back on the market if there’s a hint of a price problem, and it could put downward pressure on the new stock coming on the market,” Seiders says.
