Investors are buying, fixing up and reselling for a profit
By Paul Owers, Sun Sentinel
August 30, 2010
A Coral Springs condominium on Riverside Drive is listed for sale at $50,000.
On Haverhill Road in West Palm Beach, a house is going for $40,000.
And on Southwest 36th Street in Hollywood, you can buy a two-bedroom house for $34,900, or roughly the cost of a 2011 Ford Expedition.
The collapse in home prices during the past five years has left plenty of bargains for the taking, but many of the properties are shoe-box tiny, need new roofs or have some other major flaw that doesn’t make financial sense for buyers on a budget.
Typically, investors will buy the homes, renovate them and then resell the properties for a profit within a few weeks or months.
Rick Henderson, who recently bought a West Palm Beach home for $42,000, said he and other investors negotiate good deals with contractors and spend $10,000 to $20,000 fixing the homes.
“It would cost twice as much for a regular homeowner,” Henderson said. “There truly is no way that a regular homeowner could get the kinds of prices on material and labor unless they’re in the trades.”
Roughly 6,000 condos, townhouses and single-family homes priced at $50,000 or less are for sale across South Florida, according to a recent report from CondoVultures.com, a Bal Harbour-based consulting firm.
Broward County led the tri-county region with 2,400 of these properties. Palm Beach County has 2,100 homes, while Miami-Dade County has 1,500.
In 2005, at the peak of the housing boom, a total of 18 sales closed at $50,000 or less in Broward and Palm Beach counties, CondoVultures.com said.
Many of the properties on the market today are owned by lenders and “underwater” owners trying to complete short sales, in which they sell for less than the mortgage amount, according to CondoVultures.com.
While most of these homes have structural problems or other issues, they’re not necessarily in poor, unsafe areas, real estate agents say.
The single-family homes are mostly in older, working-class neighborhoods in the central parts of Broward and Palm Beach counties. The condos are more spread out, located in buildings hit hard by foreclosures or facing steep assessments for repairs. Some of the condos could not be sold by developers after they converted the units from rentals during the boom.
The median price for an existing home in Broward County in July was $207,500, and in Palm Beach County the median was $226,000, according to the Florida Realtors. In both counties, the medians are nearly half of what they were in 2005.
July’s median condo prices in Broward and Palm Beach counties were below $100,000, having plummeted by at least 60 percent since the peak. The median means half the properties sold for more, half for less.
During the early part of the past decade, speculators helped fuel the run-up in home prices by purchasing homes and quickly “flipping” them for big profits. When prices plunged, investors left the market.
Now they’re back, this time capitalizing on the low prices and helping to clear the supply of foreclosed homes.
“It’s ironic,” said David Dabby, a housing analyst in Coral Gables. “Now, these investors are serving a very useful purpose.”
If first-time buyers are interested in bidding for homes priced at $50,000 or less, they’re likely to face steep competition from investors, real estate agents say.
Most buyers need mortgages, but banks typically won’t lend money for a house that has structural problems or is missing major appliances, said Judy Trudel of Balistreri Realty in Lighthouse Point. Investors paying cash don’t have that worry.
“Investors are sitting out there and swooping in,” Trudel said. “Cash is king.”
David Dweck, a real estate agent and founder of the Boca Real Estate Investment Club, said investors must do the proper research to ensure the deals make financial sense. As long as they do that, most of his members find the industry lucrative, he said.
“It’s very hard to go wrong when you’re buying this cheap,” Dweck said.
Even if investors can’t resell the homes they’ve bought, they can rent them and make money, said Peter Zalewski, principal at CondoVultures.com.
“You still can get upwards of $700 a month in rent, and the expenses will be no more than half that,” Zalewski said. “You’re cash-flow positive from day one.”
Last fall, investor Laura Trebatch bought a 1,200-square-foot home off Sample Road in Pompano Beach for $47,000. The home sold for $142,000 in 2003.
The list of fixes was lengthy.
There was an illegal shed that had to be torn down. The three-bedroom house also needed a paint job, along with a new kitchen, bathrooms, a patio and an electrical rewiring. Total cost of repairs: about $15,000.
Once the work was complete, she turned around and sold the home in March to a first-time buyer for $99,000.
Trebatch, 31, a former banker, found the home while on a foreclosure bus tour sponsored by Dweck’s Boca Raton investment club. She expects to buy and sell three or four homes this year.
“It’s a great time to be buying,” she said. “Banks are trying to get rid of their inventory.”
She said her business strategy is simple.
“Buy low and sell low. Don’t be greedy.”
Paul Owers can be reached at Powers@SunSentinel.com or 561-243-6529.
