Condo Flipping May Be Making A Comeback

An investor recently bought 19 condominiums in a Miami building that was in foreclosure for $1.25 million. Twenty minutes later, the condos were sold, in bulk, for $1.45 million. Peter Zalewski, principal of condovultures.com, has at least five recent examples of similar profits.

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ROBERT SIEGEL, host:

This may sound a little like one of those infomercials in which people make colossal profits in no time investing in distressed properties, but here goes: At 1:25 p.m. on March 5th, an investor bought 19 condos in a Miami building that was in foreclosure. The investor paid the bank $1,250,000, and 20 minutes later, the buyer sold those condos in bulk to another investor for $1,450,000 -$200,000 profit in 20 minutes.

Thos incredible numbers were dug out of Miami-Dade County records by the splendidly named real estate consultancy Condovultures.com. Peter Zalewski runs that outfit, and joins us now from Miami. Welcome to the program.

Mr. PETER ZALEWSKI (Principal, Condovultures.com): Thank you, Robert.

SIEGEL: How big is this phenomenon of people buying and then reselling condominiums that banks have foreclosed on?

Mr. ZALEWSKI: It is the thing right now in South Florida. In South Florida, everybody is focused and fixated on trying to get a bank-owned property or a foreclosure.

SIEGEL: I want you to explain this to me. If the FAMA Group(ph), which bought those condos for $1.25 million, knew of someone who was right there 20 minutes later to buy it for $200,000 more, why didn't the bank know that - or for that matter, why didn't the buyer go straight to the bank and get them that much cheaper?

Mr. ZALEWSKI: Let me sort of put it in perspective. From a cycle of 2003 to 2010, there were about 35,000 new condominiums constructed in the Miami area. And what's going on now is a lot of speculators went in - just like during the tech bubble - they ran up prices on stocks, and lo and behold, when the market started to fall, everybody started to dump.

Effectively, what we're seeing now is the same type of phenomenon. We're having opportunities where investors who have inside information and/or are well-connected can get their hands on a certain product. And if they can line up a buyer, there's fantastic profit to be made.

SIEGEL: Well, you mentioned one possibility here - is inside information. That is, you'd assume that these people know there's a secondary market for these condos as soon as they buy them from the bank. Are they wired? Do they have an inside deal with the bank? What's going on?

Mr. ZALEWSKI: This is a perfect, prime example of a shadow market. A shadow market is something that's available but you can't get access to. This particular individual was able to get access to this product and because of that access, they were simply able to, you know, turn around and flip it - or what I like to call condo arbitrage.

SIEGEL: Condo arbitrage - but you know, arbitrage usually means there are a couple of different markets with different values in the different markets, and if you play the difference right, you can make a lot of money. It seems like everybody's getting these condos very cheap. Some people are just willing to pay more for it than the first people who buy them from the bank.

Mr. ZALEWSKI: Well, effectively what these bulk buyers are doing is, they're walking into this marketplace - which is Miami - they're buying a large block, and then they're busting it up, and they're selling on an individual basis. And they're realizing tremendous profits because most of the investors who want to come in today, they can't get financing, and they have some cash saved, but the cash they have saved will not give them the buying power that the bigger groups have.

So it's really a buy on a wholesale, sell on a retail, put nice a little spread on it and, you know, call it a day.

SIEGEL: And does all this ultimately translate to people being able to buy condos to live in for a lot less money than they would have paid a couple years ago?

Mr. ZALEWSKI: It absolutely does. I mean, really, what this is doing is, this is helping to, I guess, absorb the oversupply of what was constructed in Greater Miami.

Most people thought that the market was going to freefall but in reality, what's happened is these buyers are coming in - and I would tell you, half of the big buyers are foreign nationals. They're coming in, they're buying at a deep discount. They're then turning around, retrading it to individual buyers, and those individual buyers are now turning around and renting it out. So it's almost like a subsidized rent that somebody can pay to live in a product like a rock star.

SIEGEL: Well, Peter Zalewski of Condovultures.com in Miami, thanks so much for talking with us.

Mr. ZALEWSKI: Thank you, Robert.

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