Correction Leaves ‘Last Speculators’ Stuck
Forbes reports on flippers in Florida. “Condo flippers in south Florida will tell you that they are sure, real sure, that they will sell out at a profit.”
“Robert Jenkins began speculating on real estate in hot-hot south Florida. He borrowed heavily and flipped 19 houses in Fort Lauderdale, reaping profits of $750 to $71,000 on each property and plowing two-thirds of his $300,000 in profits into still more homes. He now owns seven, worth $2.5 million and doubts a crash will happen. He vows to keep flipping, even if it does.”
“Donna Franklin owns five homes. Last year she and a partner borrowed against a Miami apartment they own and rent out to make down payments on three $400,000-plus ‘preconstruction’ condos in Fort Lauderdale. They are confident they can flip the three condos at a nice markup soon, well before construction ends, at which point they must take mortgages for the $1 million they owe developers.”
“That could be wishful thinking. The number of unsold condos for sale in and near Miami has more than doubled from a year ago to 2,232, says Miami realtor David Dweck. Some 25,000 condos are under construction in the Miami-Dade area, more than the total number of purchases in the last nine years combined.”
“Three-fourths of those are in the hands of speculators, says Jack F. McCabe. ‘The demand is artificial. Most south Florida speculators have been selling to other speculators,’ he says. ‘It works fine, until you’re the greater fool and nobody else comes along to pay that higher price.’”
“Brisk sales of new homes have helped prices stay aloft, for now; sales are running at 1.2 million houses a year, 40% more than normal. In some parts of the country the last speculators, people like Jenkins and Franklin, would be in deep quicksand.”
“A correction may already be under way. The number of half-million-dollar-plus condos up for sale in Miami is twice the number in Los Angeles, whose population is four times as large. In New York prices reportedly slipped 13% last summer. In Las Vegas several developers have canceled projects amid soaring construction costs, spurring suits.”
“Terrance and Jennifer Trott, both 26, describe themselves as ‘regular folks’ who happen to own two homes. Last July they borrowed on their four-bedroom house near Tampa to pay $200,000 for a two-story condo in a development near downtown Tampa. They listed it at $235,000 in December. Two months later they dropped the price to $217,000 and are getting some bites.”
“The Trotts together earn about $85,000 a year, and the extra $22,000 a year it costs to carry their condo is a severe drain. ‘We only go out to eat on the weekends, and it’s not every weekend,’ Terrance Trott says. If the condo doesn’t sell, they may try to rent it out, just like everyone else; but even at $1,000 a month they would be pouring cash into the property.”
“Jack McCabe, is raising a $250 million vulture fund to buy condos. Lenders are already offering him blocks of condos repossessed from distressed homeowners. ‘We’ll focus on buying million-dollar properties at 2003 prices, at 70 cents on the dollar,’ he says.”
From a Tampa Bay news channel. “Unhappy Polk County homeowners looking to unload their properties can blame England for a real estate slump. Six months ago, Four Corners residents could put up a real estate sign and could sell their home for more than they bought it for, but not now.”
“The super hot housing market has lost its steam and homeowner Carlos Gonzolez has had to lower the price on his home by $20,000. ‘It went from March to November,’ Gonzolez said. ‘You are talking about a house you got for $130,000 going for $190,000 in a five or six month period, then stops.’”
“That’s because people from Britain have been buying many vacation homes there with profits from skyrocketing real estate prices in Britain. But, the market there has gone flat. ‘The property market in the UK is very flat at the moment,’ real estate agent David Edwards said.”
“Edwards said home sales in the area are off by 50 percent partly because many British buyers are scared off by recent hurricanes. Gonzolez is hoping he hasn’t missed out on the real estate boom. ‘If you time it right, you make a lot of money,’ Gonzolez said. ‘If you wait too long then you’re stuck.’”
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