Speculators Find ‘Everybodys Trying To Do The Same Thing’
A New Jersey columnist looks at the housing bubble. “The keynote speaker at a meeting of the New York Society of Certified Financial Planners last week said something that made the audience gasp. Martin Cohen, co-CEO of a firm famous for investing in real-estate investment trusts, simply said it’s a good time to buy a single-family house.”
“His argument: House prices have declined. There’s a lot of unsold houses out there, so you have plenty of choices. ‘It’s the year to buy a home,’ Cohen said.”
“Some other speakers at the meeting didn’t wholeheartedly agree. ‘We’re seeing price declines of 15 to 20 percent from the peak,’ said Christopher Low of FTN Financial. ‘”And it will escalate. Buyers who know that prices might be down 15 or 20 percent a year from now will wait.’”
“While real estate is local, there are bubbles, such as in Phoenix, California, Las Vegas, Boston and parts of New York, Low said. Florida has seen a 300 percent increase in the number of houses for sale. ‘A lot of people who bought investment properties are trying to get rid of them,’ he added.”
“Low said he called for a cab recently, and the driver apologized for being late. He explained that he had been on the phone with his real-estate agent. ‘Are you selling your house?’ Low asked. No, the driver said. He was trying to get rid of his five houses in Phoenix.”
From the Tampa Tribune. “Melanie Scala bought her first investment property, an apartment that had been converted into a condominium, in early 2005. Then she bought three more. Scala planned to rent the properties for a couple of years, tucking away a reasonable profit, then sell.”
“Finding renters, though, has been more difficult than she anticipated. To compete with other condo owners looking for tenants, she had to lower her rent so much that she is losing about $500 each month. ‘You don’t think that everyone is trying to do the same thing you are,’ she said. ‘I’m hoping I’ll still make a lot of money on the properties when I sell.’”
“The condo conversion boom in the Tampa Bay area hasn’t worked out as well as some expected, and a glut of units has triggered a cooling market. Some investors who hoped to flip properties for a quick profit haven’t. They can’t find renters and may face foreclosure on the units.”
“Interest in apartment-to-condominium conversions has started to subside, said Dan Fasulo. ‘When the lenders start to get nervous, the spigot gets shut off,’ he said.”
“Scala said she’s happy with her decisions but wishes there were less competition in the rental market. ‘When you have a whole development that closes at the same time, everybody’s trying to rent their units out,’ she said. It’s better to lower the rent to bring in a tenant than to let the apartment sit vacant for several months, she said.’
“‘I’m just a young person who’s trying to stay ahead of the game,’ she said. ‘This market’s a little more consistent than the stock market these days.’”
Interesting that the focus now is on stressed owners scrambling to find renters, even at negative cash flow. Just a few months ago, all the articles were about how dumb it was to be renting.
Here’s one for the record book Ben,
Cool-down finally arrives as summer nears
Gregory J. Wilcox,Staff writer
http://www.dailynews.com/business/c_3820005
Thanks for the Daily News link. A couple comments on it:
Hilarious how they are getting ready to release their new and improved housing affordability index. I guess when the old measure is giving you results that you really don’t like, you just “tweak” the old model until you get better numbers. I guess the gov’t can do it with CPI and unemployment, so why not CAR?
Also, the article gives a perfect example of how misleading “median price” can be. It says the median in Calabasas is now $1.7M. I know the Calabasas market very well and I can tell you, prices are DOWN from last summer. What has happened is sales have seriously stalled out in the middle to lower price ranges (500K-1.2M, yes, that’s mid to lower) while the upper end has continued to see sales. This has pushed the median and average way up while the price for an individual house is actually down.
Here is the direct link:
http://www.dailynews.com/business/ci_3820005
Just watching the news and they are talking up the new 50 year mortage. Guess where it is debuting, yep good old california. When the cabi has 5 houses you have got a big problem. Everyone one now thinks they are an investor because it was so easy. The feds basically printed money like a madman with basically the faith of the usa backing it up. Look at gold, people are actually fleeing from paper that is losing value. Inflation has been out of control for years and now all of a sudden they are talking about it. The cpi data is sh@t. If you live on the same planet you know there is too much money out there. Have a great sunday everyone.
What kills me about the 50-year loan is that it’s still an ARM! People just assume that because it’s a long-term loan it must be fixed-rate. So you’re just as screwed, only longer.
John — exactly my concern. The slick advertising quotes strongly imply that these loans are fixd-rate, while in truth they are, to date, just another variation of a toxic ARM.
How much of a difference does a 50 year mortgage make in your payment. I know if you go for a 6 or 7 year car loan the payment is not that much lower, you just don’t get to pay the car off for a longer time.
Not much of a difference. Crunch the numbers and you will find a small monthly payment difference and you are screwing yourself for 10- 20 more years. Talk about the greater fools and clueless bagholders. But all the cronies in the industry want you to care about is the monthly payment so they can perpetuate this mess.
Do you have the sub-link to the actual article? Alll I get is the daily news home page and no obvious articles about housing. Thx.
Never mind — GetStucco found it.
Ben,
I guess it gets down to what the so-called investor believes about the outlook for price appreciation. Right now it seems that many have moved from Plan A on to Plan B…
Plan A: Since prices are rising quickly, it is better to keep your unit open, to stay open to the possibility of turning a quick profit.
Plan B: Since the prospect of future appreciation is in serious question, better to hunker down and find a renter to cover your costs until prices start to go up again.
I am not sure how long it will take for all these stuck investors to move on to Plan C, which is whatever you do when you finally figure out that prices are falling with no foreseeable turnaround on the future time horizon, and that you consequently face the frightening prospect of eating negative cash flow forever.
That just doesn’t make sense. When a cab driver tells you he is trying to unload 5 out of state properties that tells you the poo poo is about to hit the fan.
or that it’s already hit and is about to start spraying in all directions ohmygod! With the legend of the shoeshine boy it’s almost hard to believe that anecdote; scary…
I live in the tampa area and the amount of building going on there is ridiculous, they will wind up with a 10 year supply of condos/townhouses.
That is how I feel about Northern Nevada.
I guess there are no economies of scale in rental complexes. One company renting to many, is not cheaper than many condo owners renting converted apartments to many?? Me confused.
I think rental complexes can charge higher prices because by ownng many units they have a risk sharing affect that allows them to have units sit on the market a little longer. Investors don’t have the option to allow rentals to sit open and therefore need to have lower rents to make sure they have occupancy.
Excellent point, and another reason (besides the record supply level of vacant homes) why rents will go down, not up as the bubble unravels — desperate flippers who own individual condo units and are trying to offset negative cashflow have far less market power than owners of large apartment complexes who actually make more money by charging higher rent and leaving some units vacant.
In my market (ann arbor mi) it seems to me that rents even at complexes have been going down for a long time, as for these past 5 years more people have been buying SFHs as investments and as more and more people who would have otherwise been renting in the complexes buy condos or houses instead. It feels to me like there’s even been a not insignificant move toward parents buying condos or houses for their college students to live in while they’re in town for their degrees…why not, after all, RE only ever goes up so why waste money on rent for your students?
Now there are complexes desperately advertising free everything and move-in specials and for rent signs on lots of SFHs as well.
Low said he called for a cab recently, and the driver apologized for being late. He explained that he had been on the phone with his real-estate agent. ‘Are you selling your house?’ Low asked. No, the driver said. He was trying to get rid of his five houses in Phoenix
Ah yes, the cab driver mogul. You’d think that stories like this would light up the Defcon 1 alert among banking regulators, but that would require them to actually be concerned about the health of the banking system.
I remember a cab driver in San Jose telling me all about the Internet stocks he was investing in, back in 1999. Now that the RE frenzy is over, I wonder what investments cab drivers will be talking to their fares about a few months from now.
Gold.
Oil & Gas Ltd Partnerships.
A few months from now? More like years…
The general public does not catch onto anything fast, and takes even longer to let go. It took years for the tech bubble, years again for the housing bubble. Even Beanie Babies took years. Hell, people are still clinging to the tech bubble even now (e.g., Google). Come one, it’s human nature, folks; you know it’s true.
There may be temporary bubbles in some markets created by hedge funds and other professional speculators, but there won’t be any public manias for quite a while yet. Precious metals certainly isn’t one; the general public is absolutely clueless, and the market’s way too small for the pros.
Oops! Supposed to be “Come on, it’s human nature…”.
Ben, will we ever get a “Preview” feature??
Precious metals certainly isn’t one;
I was wondering how long it would take you to get around to that.
Lemmings. No, I take that back, lemmings have the good grace to commit mass suicide and thus decrease the surplus population. These idjits are going to malinger and whine.
…and ask the gub’mint for a bailout from those who did not make the same stupid decisions which got them into a bind…
Nope, they just can’t…people who say “I’m just a young person trying to stay ahead of the curve” just can’t do that. They couldn’t do it with their tech stocks and they can’t do it with their 5 flippin’ props in Phoenix bought between fares to the Tampa airport ( I guess it must feel like a really brilliant move if you’re busy hauling people in from the UK or wherever to their unseen but already purchased condos in Tampa to be speculating instead in Phoenix!)…
“Finding renters, though, has been more difficult than she anticipated. To compete with other condo owners looking for tenants, she had to lower her rent so much that she is losing about $500 each month. ‘You don’t think that everyone is trying to do the same thing you are,’ she said. ‘I’m hoping I’ll still make a lot of money on the properties when I sell.’”
How can someone this clueless even qualify for a loan?
Ya didn’t think that other people would be trying to do the same thing? How did the idea to buy a bunch of glorified apartments originate in your brain there Melanie? Perhaps by reading the same stories of wild RE appreciation and get rich quick schemes as the rest of your homies? It didn’t dawn on you that perhaps others were reading the same stories and jumping on the same boat?
Now that you have seen that masses of other idiots are trying to rent out their “investments” your follow on statement is “I’m hoping I’ll still make a lot of money on the properties when I sell”?
Are you fu*king daft? It hasn’t yet dawned on you that just PERHAPS the same morons you followed into this debacle will all want to sell at some point in the near future?
Is it just me or is this as large of a collection of stupid quotes from one person as we have had on this blog to date? I need to go for a walk, this kills me.
They were still breathing at the time they applied…
Even though “we could’ve worked with it if they weren’t.”
I could feel a little compassion for this girl because we all have been young and clueless and still are compared to someone somewhere but c’mon 4 houses????!!!! That’s just greed and she deserves the hard lesson she is getting.
Ya think maybe those very very few of us who have been claiming there was/is no housing shortage were right? Now that it turns out five of those houses in Phoenixx weren’t really houses but tulips/beanie babies/pet rocks what’s next? I’ll tell you; there will be specuvestors screaming for building moratoriums until the “excess inventory” can be cleared. In essecence they’ll create an artifical shortage to try to save their a$$et$.
Good point R.Cote …..The investor/flippers created the housing shortage. The investment groups helped these flippers get loans and told them what to do I think .
let em scream. Even a moratorium aint gonna help them. By the time the excess in phx is cleared, it’ll be 2015 or later. Oh, and they’ll have either mailed back the keys or done the BK.
That’s the thing, there’s nothing to be done that won’t make things worse and believe you me I’m not going to stand for any kind of breaks. That’s my money and I’m going to keep collecting. Whether people like me were smart or lucky or born at the right time doesn’t matter, what matters is that no one had a gun to their head in this mess. When the time comes I only want the lenders to go to jail. The FBs need to keep working, and working hard so my investments continue to pay dividends.
It’s going to be very interesting to see who have been the buyers of the toxic-waste mortgage-backed securities into which the direct lenders have packaged these loans. Without those MBS buyers, we could never have had the loose lending standards that drove this bubble. I suspect that many are Japanese insurance companies and pension funds that have been made desperate for yield by their government’s zero-interest-rate policy. Some are probably also Western hedge funds buying with money borrowed from the Japanese at near-zero rates (when you’re getting 20% of the near-term profits, and on the hook for none of the losses, why not swing for the fence?). Since Fannie Mae, Freddie Mac, and the banks have had standards that should have kept them fairly well clear of this stuff, and they’ve been the buyers of so much of the securities, it is presumably the rest of the pack that will be left holding most of the bags.
amen.
jm, I predict HUGE lawsuits from large holders of MBSs. After all, if the banks had reason that the appraisals or the incomes that the loans were based on were fradulent, than they have comitted fraud.
Short term demand ,(created by investors ),is not a solid market and does not reflect the true long term demand of a area .What flippers would buy ,real house users might not . Alot of developers were actually marketing a concept that only the flippers and the investment groups would fall for . Now the flippers are having a hard time even finding a renter ,let alone a greater fool buyer. Time will tell what the true demand is . I don’t want to rent from a flipper because it’s likely they will be raising the rent every chance they get because they are operating at a big minus cash flow . What if the water heater ,etc.,goes out :will they have the money to fix it ? These housing gamblers do not make good landlords IMH.
What’s the matter, afraid you won’t be able to get our cab-driver landloard on the phone when something’s broke? Just call dispatch.
LOL . Yes, I just love a out of town landlord thats slowly going broke .
“I don’t want to rent from a flipper because it’s likely they will be raising the rent every chance they get because they are operating at a big minus cash flow . What if the water heater ,etc.,goes out :will they have the money to fix it ? These housing gamblers do not make good landlords IMH.”
The key is to be willing and able to move on at the end of your lease if the rental relationship is not working out. There will be no shortage of alternative rentals for the foreseeable future, and landlords will not have the pricing power you suggest because of too much competition.
Yes , the key will be to be able to move on . However, flippers are greedy and going broke and they might of already spent my good faith rental deposit .
Again, since you’ll be in the driver’s seat, you should be fine with no more than 1/2 month deposit.
I’m not a renter myself , but , I’m trying to alert renters to the possible problems they face in renting from some stupid ass investor who f–ked up this market . Yes I am angry . Last year I thought it was a population explosion or shortage on housing that was fueling this crazy market .
Now I find out the Lenders were allowing people to buy 5 or 6 properties at a time based on the notion that “real estate always goes up “. Yes , I’m pisssssssssssssed . I just picture people who really needed to get into a house that got priced out of the market because of the investor demand .Sorry for the rant .
Housing Wizard, no one *NEEDS* to buy.
I hate the house we rent. BUT my kids live in the same neghboorhood as before we sold out house, they have the same friends and go to the same school. Our landlord bought this house in.. Oh 1988 or something. Him and his wife are school teachers and have been careful with ther money. We will stay put for now.
Perhaps this will be the era where prospective tenants start requiring landlords to undergo a credit check before signing a lease.
Or they can request a security deposit from their landlord.
Get Stucco is absolutely correct. The place we wanted a year ago was $2.5K/mo and landlord would make zero concessions (we’re talking paint a couple of rooms, add a fan) — we wanted very little. Rented a different place at $2K. First place sat vacant the entire year and now just lowered to $2K, after we renewed the lease that we are quite happy with. Greedy landlords will be just as much toast as greedy flippers, IMO.
wow…sitting vacant a whole year for such small issues? what is *with* people…we are so screwed up as a society…
“His argument: House prices have declined. There’s a lot of unsold houses out there, so you have plenty of choices. ‘It’s the year to buy a home,’ Cohen said.”
My argument: It’s the year to buy a home — if you are a family in the upper 1% of the income distribution. But (at least for San Diegans) if the loss of $200K or more would make a serious dent in your household’s long-term savings plans, it would be far wiser to keep renting for a few years to see how far this market drops before getting your toes wet.
Of the four families I know personally who bought a home in SD last year, only one seems relaxed about the situation, perhaps due to CEO inheritance money from two preceding generations. Of the other three families, two are stretched and slightly desperate about making ends meet on the household budget, and the third is separated — after barely managing a home purchase last year, they never could come up with the money to finish the kitchen (no stove makes it hard to feed the kids) and now they have to cover a mortgage payment plus rent on the apartment where mom lives with the kids.
All this stress will be replicated over myriad households when bankruptcies and price declines get into full swing over the next couple of years…
Sounds like your friends only bothered to buy one home — a big mistake. What they needed was diversity like our cabdriver.
It find it difficult to imagine how wealthy, successful real estate investors can find the time and energy to drive a cab on the side. I have also heard of some who work as hair stylists
Melanie, many of us have a perspective on business. How did we get it? By trying, and in some cases failing. Even if things turn out poorly for you, you will have acquired some wisdom at an early age. You will most certainly learn not to the follow the crowd. I hope somehow or another you succeed. If not, you have gained knowledge.
my wife has a friend who’s dad is like this. he’s a cab driver in NYC and owns several properties here along with supposed condos in Miami. Reason is that a lot of immigrants don’t understand stocks or bonds but they know things like RE or taxi medallions. Not a hard concept of owning property. These people also have crazy ways of hiding ownership like having ex-spouses own some properties on paper or friends or whatever. Goes back to the USSR and the stories I’ve heard where people would literally hide cash in a matress or ask friends to hide their cash from the government.
My inlaws also have the Russian TV channel and they are still pushing RE in florida with sunny dreams.
They are about to be borscht.
My realtor friend (not such a bad guy believe it or not) is running into a lot of attempted kickback fraud with the immigrants here in Miami. They want to write up a contract for 100K or more than the sales price, and then get that back under the table from the seller. That way they have not only not put any money into the property, they have money in their pocket. I don’t know how rampant that is, but when the $hit hits the fan, I think that’ll be a bigger factor than people realize.
According to the internet, an average NY Taxi Driver makes $36,000.00 per year. A speech pathologist makes an average of $53,800.00 (Melanie Scala’s profession). The taxi driver ownes 5 homes in Phoenix and Melanie ownes 4 rental properties in Tampa. How exactly did they get loans for these? I think it’s a safe bet to say neither was exactly truthful on their loan application paperwork.
You can thank the “No Doc” loans for these. I sure hope they outlaw them in the future.
this will be a problem for Melanie and others of her ilk down the line when they try to take the easy way out
http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000523—-000-.html
Bad Link
Try this
Thanks!
Here it is… FRAUD & DECEPTION:
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or
TxChick — great site — thanks for the lead. Makes me feel a fair better re the threat to my tax dollars. For today, at least.
According to the county, Melanie bought three properties in 2005 (a couple she had partners on) for $146k, $259.5, and $220k respectively. The last one was a owner occupied. If she does make $53k, no way she handles negative cash flow in addition the her mortgage payment. At the very least, wait until she gets the tax bill and new HOA fees (when the Condo association passes on the insurance bill). Once again, no bailout or sympathy for people like this.
Thanks for quoting Chris Low. I’ve listened to his First Tennessee conference calls and have read his market analysis for years. He called the last recession we had in 2000. I haven’t had the ability to hear his calls lately. When your fundamentals are based on people like Melanie and the cab driver, real estate can only go down. I take much pleasure in waiting people like Melanie out before I decide to buy a home.
“Finding renters, though, has been more difficult than she anticipated. To compete with other condo owners looking for tenants, she had to lower her rent so much that she is losing about $500 each month. ‘You don’t think that everyone is trying to do the same thing you are,’ she said. ‘I’m hoping I’ll still make a lot of money on the properties when I sell.’”
This is an anomaly. Because when would-be buyers are all too scared to buy a home due to falling prices, then housing demand will morph into rental demand, and the landlords of the country will make out like bandits… Never mind that there are maybe more vacant homes littering the landscape than at any other point in US history, because inventory does not matter — just ask a San Diego developer if you don’t believe me.
Having watched the crash in Boston in the late 80’s, I can tell you that it won’t be long before housing units materialize as rentals in a big way. Rents dropped substantially.
“While real estate is local, there are bubbles, such as in Phoenix, California, Las Vegas, Boston and parts of New York, Low said. Florida has seen a 300 percent increase in the number of houses for sale. ‘A lot of people who bought investment properties are trying to get rid of them,’ he added.”
And in Sidney and in Madrid and in Shanghai and in London and in Vancouver and in Capetown and …
Right on the money again GS. This is a global phenomenum. It started with the housing bubble in Phoenix, which spread to SoCal and Florida, then to Australia etc. Historians will pick Phoenix as the start of the Global Recession of 2006-2007.
On another note, to anyone that thinks now is the time to buy-WRONG! When the term “REO Department” becomes part of Joe Sixpacks lexicon, it will be the time to buy. Any of you rookies out there that don’t know what REO means should not buy at this time.
REO Speedwagon?
(I Believe) Our Time is Gonna Come
“This market’s a little more consistent than the stock market these days.”
It never fails to amaze me how many people think that RE is somehow different than stocks, when they are usually leveraged to the hilt with their RE.
The thing about stocks is that I can take profit and put it in the bank and I can sell my portfolio in 10 minutes.
Did I mention that my gold position is up 30% in the last while ?
“‘I’m just a young person who’s trying to stay ahead of the game,’ she said. ‘This market’s a little more consistent than the stock market these days.’”
We just had the seven good years (consistently increasing real estate prices) and now we are on to the seven bad years… There is your consistency.
I much prefer stocks. You can go long or short. You can speculate on small, brief price moves or invest for longer-term moves. You can in and out with the click of a mouse. A round-trip transaction (buy/sell) costs under $20 no matter how large the investment. You can go to cash instantly if you are unsure of market direction.
With RE, if you guess wrong, you’re stuck with an illiquid investment that may be costing you neg cash flow each month. My stock portfolio never asks me to pony up money each month to cover a shortfall. The round-trip transactional costs on RE are 5-7%, not a flat $20.
True, RE does offer higher leverage (10-1 on a 10% down, 20-1 on a 5% down, Infinity-to-1 on a no-down) while stocks are generally about 2-1 at best. But this cuts both ways. And when RE turns against you, you are either stuck with neg cash flow or are forced to sell at a loss, or you’ve just let a speculation become a (very) long-term investment.
We still own RE, but sold 2/3rd in late 2004. I like RE when it throws off pos cash flow. But I never speculate on RE under the circumstances we see today. Let the amateurs come in and get stucco.
For the time being, I’m happy playing the market and finding investments that throw off quality, sustainable income with a potential for capital appreciation.
“”I’m just a young person who’s trying to stay ahead of the game,’she said “”
Response to young investor :
Buying 5 condo conversions at once ,that your going to have problems renting at anything but a major neg. ,(especially when the ARM notes adjust ), is not staying ahead of the game .Somebody told you that you could “get rich quick ” buying real estate so you figured that 5 properties would get you rich quicker . Now your shocked that thousands of other flippers had the same greed level you had . Eat sh-t, ….
Precisely. I don’t even want to hear that whining BS.
LOL! I’m in Tampa and there are too many of these clowns here.
If Tampa was a chinese restaraunt then all these investors must be eating the poopoo platter.
two items in LATimes RE section
a) one newbie agent , for eight months, not made sale…asking for suggestions. suggestion from columnist go and work in rentals dept
b) aunt cosigning her niece for a condo , niece lost her job, $14000 behind in payments. aunt worried about protecting her credit.
Newbie agents are screwed right now. Might as well go back to walmart or sbux and get a real paycheck.
Condos around roseville here are absurd. The hoa fees and mello roos are enough to make you go broke. Has landscaping got that expensive?
The state is now trying to figure out what to do with all the bucks they are bringing in from housing debacle. In a year or two they be busted again wondering what happened.
OT:
Good LA Times story on toxic mortgages.
Reverse Mortgage chicanery
http://www.latimes.com/business/la-re-harney14may14,1,5760254.story?coll=la-headlines-business
OC Register article on Gen Y:
He must have an affinity for prison sex. This article screams ass-pounding to me.
http://www.ocregister.com/ocregister/money/housing/article_1140937.php
at his tender age he doesn’t know that it doesn’t matter if he’s putting the principle payments in equities, if his house drops in value he’ll have a net wash and tax liabilities to boot. He’s trying to be a “master of the universe” but he’s just not that smart.
Group of the greatest fools.
It has Great Depression all over it. What if the house does not go up in value as most believe? What happens when it comes time to refi in 5 years when the rates reset and no one is willing to refi it because it is worth less than he owes? What happens if his mutual funds tank as the housing bubble goes pop? Mr. Savvy young Educated investor doesn’t seem so smart now while he moves back home and looks for a new career because the mortgage market is dead.
Oh yeah… he sounds really smart there. It looks like it will take another great depression for people to realize that it really isn’t so easy.
Melanie took her advice from the research that Suzanne did. The taxi driver also consulted with Suzanne.
The future Schmuck of America and bankruptcy candidate. What a putz.
I read that Tampa Tribune article in my rented place while enjoying my morning coffee. One point in the article that Ben didn’t cover–the example of a 454-unit apartment complex converted to condos last spring. As of today, only 207 have sold, and only 12 owners have applied for the state homestead exemption, meaning that probably only 5% of buyers actually are living there with intent to make it their primary residence.
That place is in Ybor City, where I at least can see some (not many) people wanting to live. On the other hand, a condo in Tampa Palms/New Tampa has to be the most boneheaded “investment” ever. Once while scanning some ads, I recognized a thoroughly ordinary Tampa Palms complex off of Bruce B. Downs that I had visited for a party some years back, now being portrayed with the customary smiling young couples and an Italianate name as the veritable must-have fount of a hip lifestyle.
A last point: while driving around south Tampa, I happened to see that the venerable Coachwood Apartments (affectionately referred to by a friend of mine–a former resident–as the “Roachwood”) have converted. There is a phone number with a Miami area code on the sign out front, advising all and sundry of this wonderful opportunity.
This just has to stop.
I have had a pretty up close view of this for the last four years. I remember about four years ago I had several realtors calling me to put inexpensive vertical blinds in a lot of these brand new California investor homes. I probably did about twenty homes in this one development alone. Anyway just last week I had a customer call me to come out to a home where the old renters had just moved out. So I drove out there and it turned out to be this development but it was a house that I didn’t do. This house was trashed. The flooring was wasted, many of the doors trashed, graffiti painted on the walls, and the backyard a mess. This investor would probably have to dump close to $10,000 back into this house for it to even look decent to sell. Upon arriving I just laughed. It turns out that about 42% of the homes in thsi development are rentals. The development is about four years old and its in Avondale, AZ.
A coworker of mine was living in that Ybor City complex (formerly Camden Ybor) and moved out when it went condo. She said that as soon as the developers bought the place, they stopped doing regular landscaping maintenance, things took forever to get fixed, and the white trash with the coolers of beer and obnoxious stereos came out of the woodwork. Ybor is a fun place to hang out on weekend nights, but it is still a crime-filled mess, and no place to spend a cool quarter-mil on a converted apartment (as if anywhere is).
My incidental Tampa condo-conversion Story. In Dec 2003 I put down a deposit on a condo conversion that I had just fallen in love with. That was when the total Tampa sales volume for conversions was just $0.12 billion. I got not just cold feet, but the inability to sleep and a bad shaky feeling and backed out and luckily was able to talk them into giving me my deposit back. In 2004 I instead invested $30,000 in a paid off Florida prepaid college fund for 4 years dorm, tuition and fees(which due to rising college costs is making me 6% a year in value). In Dec 2004 my condo I would have bought was listed at $50,000 more than I would have paid. At that time Tampa condo conversion sales were $0.24 billion. I thought what an idiot I was. I could have had $50,000 in equity to pay for my son’s college and a place to live to boot. I was just sick I did not get in and all my friends were thinking that I had some sort of a mental condition for continuing to rent. Now it is 2005 the total condo conversion sales for Tampa are $2.3 BILLION. The market is flooded. The complex I was buying into was found to have a massive termite and structural problems, there are braces holding up the walls, the residents are suing. The size unit I would have bought is now down to only $30,000 more than I had a contract for(sans a garage). Many, many are listed for sale. I am sure there is probably some sort of special assessment coming up say $20,000?, boys and girls and in the form of a personal loan at todays new high interest rates. They cannot sell as the market is now flooded with other conversions. Needless to say I would have been screwed and my kid probably would have to ask Sallie for money for college.
What do you think Ms Scala will do if she ends up with $20,000 assessments on each of her four already money losing properties? While we did not get a direct hit from the hurricanes many of these complexes were damaged, this housing bubble came at a good time. I heard of some renters saying that they had a water fall on one wall every time it rains. Thank You for this blog Ben and all who post to it.
JanniFL — congratulations on your instincts. I’ve bought and sold raw land (flips), SFRs and condos (personal residences) in Florida for almost 40 years. I cannot think of a single reason to buy a condo conversion as an end-user. Ever. Think about it. What was it, before becoming a condo? An apartment complex. Do apartment complexes have the same square footage or amenities as condos? Rarely, if ever. So, unless the developers are making two or more apartments (and parking) into one, how in the world will they be able to complete with genuine condos? I’m in a leased condo — it has two guaranteed covered parking spaces and I love that. If there are “conversions” anywhere in the country that include two guaranteed garage spaces per unit, I’d like to know about that. I think you did well to get out and not risk your child’s education money on a likely bad deal — won’t dignify it with the term “investment.”
JanniFl - congrats for your instinct. Those stuck there are taking it from the inside. Must be one large stomach ache.