Miami Home Flippers Make a Comeback
On March 5, a buyer purchased 19 units in a Miami condo development for $1.25 million. Just 20 minutes later, the same buyer sold them to another buyer for $1.45 million, clearing a 16 percent return of $200,000 before fees.
The first owner was the Fama Group, a Miami-based concern, and the second owner is Rentdepo LLC, also based in Miami.
Is bubble-era flipping back?
On one hand, the situation seems more a symptom of the downturn than an indication of a new bubble. In 2009, there were 97,000 condo foreclosures in Miami. Bulk buyers such as Fama Group have made it their business to buy undervalued properties out of foreclosure and quickly resell them, taking advantage of the fact that most banks don't want to be in the real estate business. Indeed, Mi Primera Ilusion Villas LLC, the developer of the condos that were sold, transferred them to Eastern National Bank in Miami on Jan. 6.
Peter Zalewski, a principal at CondoVultures LLC, a real estate consultancy in Bal Harbour, Fla., calls this trend "condo arbitrage, Miami style." His firm reports five recent instances in which bulk buyers scooped up condos at bargain basement prices in south Florida and resold them within weeks for at least a 40 percent profit.
On the other hand, the current house-flipping frenzy may actually be good news, a sign that the real estate market is bottoming out. After all, the fact that these bottom feeders are confident they can turn around a batch of condos for a fast buck means there must be a market for them at somewhat higher prices. In other words, their market value is rising.
Another big difference: most of today's house flippers are paying in cash.
It doesn't hurt that the Federal Housing Administration (FHA) recently lifted its ban on using an FHA-insured mortgage to buy a home that was being resold within 90 days of purchase. Originally intended to hinder mortgage fraud, the rule has prevented many low-income buyers from purchasing a home snatched from foreclosure by an investor who then spruced it up for a quick resale.
Considering how difficult is to obtain a mortgage these days, due to much stricter lender criteria, it's hard to imagine how this round of home flipping could get too frothy. New housing bubble? Nah. This one's more like a refreshing fizz.