REAL ESTATE FRENZY
Riding the Boom
They snap up real estate, flip it, then chase the next hot market. They’re
the new day traders-and they’re dancing on the edge of a volcano.
By Grainger David
FORTUNE
May 30, 2005
Zareh Tahmassebian is on the way to look at two of his houses in Phoenix. He
is lost. Most people don’t get lost driving to their own residence, but
then, Tahmassebian has never actually been to these particular homes. There
are a few reasons for that: (1) He has no intention of ever moving into
them, (2) he lives in Las Vegas, not Phoenix, and (3) he owns six other
houses-and a half share of seven more-in the greater Phoenix area.
“Sometimes it’s hard to keep track,” he says.
Tahmassebian, just 22, is a big, affable guy who dresses the way a budding
young speculator should: black trousers, a blue-and-white-striped shirt,
cuff links, a Cartier watch, black suede loafers, and rimless purple
sunglasses. The son of Armenian immigrants, he has spent the past four years
in Las Vegas working as a mortgage banker, a job that he says paid him
$250,000 in salary and commissions last year. He has taken the day off to
fly to Arizona for a “frame inspection.” The houses he’s inspecting are
somewhere inside the Cholla Ranch development that’s being put up by KB
Home, one of the nation’s largest builders. Right now he’s in the general
area-cruising southeast down Highway 10 in a white Chrysler 300M rental
car-but lacking specifics. “Is that Tempe?” he asks. “I think I have some
houses there.”
After several uninterrupted miles of cactus, desert, and tumbleweed, it
becomes clear that he’s missed the turn, and he exits the freeway while
dialing his broker. “Papa John!” Tahmassebian says into his cellphone.
“Where are my houses?” To get more help, he dials KB Home on another phone,
and soon he has a gleaming silver clamshell at each ear. For a moment the
car drifts dangerously across the exit ramp, until I reach over to grab the
steering wheel. “It’s okay,” Tahmassebian whispers, nodding toward the place
where his trousers meet the bottom of the wheel. “This knee can drive.”
When we finally arrive at the first construction site, on Paradise Lane,
Tahmassebian begins his inspection. “See this wood?” he says, gesturing to
the slatted frame of the unfinished house. “This wood made money for me! I
don’t own it-but I own the rights. I put a 10% deposit down, I haven’t even
made a mortgage payment yet, and it’s already gone up $45,000. What a
country!”
This country is obsessed with real estate. The number of chapters of the
National Real Estate Investors Association has jumped from 44 in 2002 to 170
today. Eighty-six books on real estate investing were published last year,
nearly three times as many as in 1998. Even reality TV is getting into the
act: This summer the Learning Channel will air a show about people flipping
real estate in San Diego, hosted by a woman who has bought and sold more
than 40 properties in the past seven years.
And the appreciation! Surely you’ve heard, because real estate profits are
the kind of thing that no one-your neighbor, your boss, yourself-can seem to
shut up about. Since 2000 the median sales price of a single-family home has
jumped 77% in New York City, 92% in Miami, and 105% in San Diego.
“Nationally, all levels of real estate activity are at all-time highs,” says
economist Mark Zandi at Economy.com.
Of all the phenomena that the boom has wrought, perhaps the most telling is
the return of speculators like Tahmassebian. Speculators are creatures who
emerge every decade or so to exploit the hot business cycle of the
moment-those whose aim is to ride the wave to its highest point and then,
with miraculous skill and timing, get out before it crashes on all the
greater fools beneath. (They are also, like fishermen, more than willing to
exaggerate the size of their catch.) Lately their numbers have been
multiplying with every cocktail-party tale of a dentist, florist, or shrink
buying “threesies” and “foursies” (three or four properties at a time, in
speculatorese) and making a killing. In March the National Association of
Realtors released a study estimating that investors represent 23% of the
homebuying public. That number includes second-home buyers; mortgage lenders
estimate that pure investors account for a hefty 10% of all buyers.
Historically the U.S. rate has been half that.
“You’re seeing people now for whom investing in real estate is their life,”
says Jay Butler, director of the Real Estate Center at Arizona State
University. “They are quasi-pro and amateur investors driven by the idea of
self-sufficiency: This is their way to become financially independent. It’s
a move taken straight from the old day traders of the stock market.”
Comparisons to the stock market bubble of the late 1990s imply that this is
a party that will be over soon. At least that’s what analysts, experts, and
magazines like this one have been saying for two years now (see Is the
Housing Boom Over? on fortune.com). Except it hasn’t turned out that way. At
least not yet. The Commerce Department just announced that new-home sales in
March soared 12.2%, setting a new record. Now it looks as if 2005 might be
another record year.
What the hell is going on out there?
To answer that question, FORTUNE toured model homes and half-built
developments, attended seminars, and stood in condo lines with dozens of
real estate speculators (who would probably prefer to be called real estate
investors) in Los Angeles, Las Vegas, Phoenix, Austin, and Miami. As a
group, they tend to alight on a hot market, gorge themselves on property
until prices skyrocket, then move on to yet another promising town. Many of
them acknowledge that they are part of a bubble and that a correction is
coming. But they believe it won’t hit their market-or that if it does,
they’ll be able to get out in time. Despite all the warnings and a few
bleats of self-doubt, most of these people are continuing to behave with all
the stark raving urgency of panicked shoppers at an after-Christmas
clearance sale.
To appreciate how intense the real estate craze has become, you could have
done a lot worse than visit last month’s Real Estate Wealth Expo in Los
Angeles (slogan: “One Weekend Can Make You a Millionaire”). A 46,000-people,
two-day lovefest at the Los Angeles Convention Center, it featured the
advice of Donald Trump, bestselling author Robert Kiyosaki, motivational
speaker Tony Robbins, and hip-hop impresario Russell Simmons. Imagine a
late-night infomercial sprung bizarrely to life, with all the hucksters and
viewers mingling in the same giant room, whipping one another into a
get-rich-quick frenzy.
More than 100 kiosks filled the exhibit hall, selling everything from Miami
condos to massages. Inside a phone-booth-like contraption called the Money
Vault, attendees grasped wildly as gusts of air blew around a mass of
fluttering fake dollar bills. At the end of one seminar on commercial real
estate, a speaker named Scott Scheel offered the crowd the chance to buy a
“training packet” of books and DVDs for the “discounted price” of $1,620.50.
A mass of people surged toward the cashiers, credit cards at the ready.
It is fitting that this hoopla took place in Los Angeles, since it was
California that gave birth to the modern real estate speculator. In 1997 the
average price of a California home was $186,490. Today it’s $495,400. A
market experiencing that kind of rapid appreciation is the perfect breeding
ground for speculation, and an impressive run of it is exactly what
California got. In Los Angeles between May 2003 and May 2004, for example,
the number of homes sold that had been owned for less than six months jumped
47%.
As prices ballooned, however, speculating on California real estate became
more expensive. It also became harder, because developers began inserting
what are known as antispeculation clauses into their sales contracts. The
clauses require proof that new homes are being sold only to genuine,
we-want-to-live-in-this-house buyers, and they include a litany of penalties
if the home is resold within a year.
But it wasn’t very appealing to just cash out of real estate altogether.
That’s because individuals can defer taxes on the sale of an investment
property if they make another purchase of equal or greater value within six
months. That provided a powerful incentive for speculators to invest real
estate gains in yet more real estate-but not in the Golden State. If
California was no longer a good option, where else was there?
At the Investing Get-Together at the Durango Hills Golf Club in Las Vegas,
Debbie Smith, a thirtysomething blond, is grappling with one of the many
dilemmas facing the modern real estate speculator: remembering exactly how
many houses you have. “We have four, five, six, seven, eight-wait, let me
think,” Debbie is saying.
She begins counting homes on her fingers, ticking off the names of
developments. “Palmilla, Terracina, Cliff Shadows-”
Mid-count, her husband, Jason Jones, with whom she hosts the monthly
Get-Togethers, comes over to help. “There’s the Mount Charleston cabin,” he
says.
“And Mar-a-Lago,” she adds. “So what is that? Twelve properties? I’m trying
to think if there are any more…”
Debbie takes out a business card and begins writing down the names of the
communities-in Las Vegas mostly, but also in Boise and Albuquerque-on the
back. She gets 12 again. And pauses.
“Oh! We have Solana,” she says, suddenly brightening, as if a dam has burst.
Her heavily mascaraed eyelashes flutter. “That just closed this week. Oh!
And I have one in Mississippi too. I forgot about that. Fourteen.” (Actually
the couple have 20 properties; they’re forgetting a block of apartments they
picked up last winter.)
It should come as no surprise that Debbie and Jason, a former teacher and
financial advisor, respectively, are from California. Though they didn’t
have a stake in the California home-price bonanza, it definitely got their
attention. Starting in 2002, they applied lessons they learned from
well-known real estate guru Robert Allen and bought-online-five Florida
houses that were in pre-foreclosure, putting just $1,000 down on each. They
lost some money when the rents didn’t cover the holding costs; then they
watched the values leap. They were hooked.
By the summer of 2003 they had moved to Las Vegas, a market that was just
beginning to show signs of life. In 2004, prices there rose 49%, and the
speculators were swarming. Debbie and Jason began snapping up properties,
putting anywhere between 5% and 20% down. They bought seven of them by
draining their remaining $140,000 in savings, they say.
The rest they bought by taking maximum advantage of a speculator’s favorite
tool: leverage. Though they were out of cash, they managed to keep buying by
borrowing some $400,000 in down-payment money from friends, family, and
local lenders. Most of the properties carry adjustable-rate mortgages that
are fixed at favorable rates for the next three to five years; the rents
they earn from those properties just about equal their total monthly
mortgage payments.
Today the couple estimate that the 20 properties they own are worth about $8
million. If that’s true-and until they sell, no one really knows-their total
equity has grown to about $4 million.
That amount, the couple say, represents their entire net worth. But that
fact doesn’t seem to trouble them much. They plan to sell properties when
they need the cash and hold on to the others to fund their retirement. “It’s
a risk,” concedes Debbie, “but I really feel like it’s a lot less risky than
the stock market. Even if it does crash, it’s not like it’s worth
nothing-like a stock, where the value can go all the way to zero. I guess
it’s much more exciting than it is scary.”
As the networking part of the Investing Get-Together winds down, a short man
in an aloha shirt comes over to the couple to introduce himself. His name is
Kelvin Nakasone. He has an announcement to make: He has just bought a new
house with the help of his real estate-investing mentor.
His what? It turns out that Nakasone, 40, a high school sign-language
teacher who invests with his sister, an accountant, is a member of Russ
Whitney’s mentor program. Whitney is one of hundreds of real estate
counselors currently making the rounds on late-night infomercials and at
local real estate gatherings around the country. Whitney’s program supplied
Nakasone with a “mentor” who gave him a weeklong crash course in real
estate; “extra coaching” in the form of a weekly followup phone call; and
multiple training seminars in places like Cape Coral, Fla. For that,
Nakasone paid more than $35,000. (“Sheesh,” Debbie says later. “Some of
those programs are really good. But his sounds like it was a little
expensive.”)
Nakasone started with the program in October and bought a house in Las Vegas
in December. How much did he pay for it? “I can’t remember,” he says
cheerfully. Is he worried about talk of a bubble? “Well, I can foresee what
will happen,” he says. “I know in the near future a lot of people who have
interest-only mortgages will get in trouble.”
He’s probably right. Interest-only mortgages-which don’t pay down principal,
so borrowers make lower payments than with conventional mortgages and thus
can afford more expensive houses-used to be considered risky. In 2001 just
1.6% of all new U.S. mortgages were interest-only. But last year a stunning
31% were. If there’s any sign that a downturn could get loads of folks in
trouble, that’s it.
So what kind of mortgage does Nakasone have? “Interest-only,” he says. “I
didn’t put any money down. But for investors, it makes sense. We get lower
monthly payments. In my case, I’ll be selling it for a profit, so I don’t
care about the interest-only. See, I’m from Hawaii? Property values there
went through the roof. I saw the same things happening here, and I just know
what is going to happen.” His sister, who handles the money side of things,
told him that the property has already appreciated $50,000. “I’m just
waiting for the back end,” he says.
Phoenix: Working the system
Trish Don Francesco, a 55-year-old in a scarlet Asian-style shirt, is
peering over her red spectacles at a map of Phoenix’s ever-expanding
suburbs. Don Francesco runs Metropolitan, a real-estate-portfolio management
company in the city, where business has been brisk lately. A board nearby
lists names of recent buyers; some have bought more than 20 properties in
the last week. It has been a long time since she took a day off. “Honey,”
she says, “I never take a vacation during a boom.”
Just as the Las Vegas market was starting to sag last year, the Phoenix
housing market was heating up. Having heard stories of what happened when
the speculating boom hit Vegas, local real estate offices like Metropolitan
began contacting California investors directly. Don Francesco sent out
“millions” of direct-marketing faxes all over the state. She estimates that
more than 700 California investors have visited her office in the last 18
months. More than half of them have purchased property. “We pick them up at
the airport and drop them off,” she says. “Why rent a car? Sometimes they’re
here maybe six hours total. Even then, a lot of them don’t need to see the
houses. They get here, look at the prices, and say, ‘Two hundred and fifty
grand? I’ll take two of ’em!’ ”
In the past year the number of Phoenix homebuyers who identified themselves
as investors has more than doubled, to 2,703. They bought 18% of all homes
sold in the Phoenix area in 2004, according to Infocom, a local real estate
research company. Phoenix builders, fearing that the speculative frenzy
would damage their primary business, soon announced the same kind of
antispeculation clauses that had proved largely successful in both
California and Las Vegas.
By the time those measures were in place in Phoenix last fall, however, the
swarm of investors descending on the city was almost too much to stop. At
one of the construction sites of big builder Toll Brothers, a van full of
investors from Las Vegas pulled up to a sales trailer shortly after the
antispeculation measures had gone into effect. According to a Toll Brothers
spokesperson, the saleswoman on call was so flustered by the group’s
displeasure at being denied an opportunity to invest in such a scalding
market that she had to radio headquarters for backup. “They all wanted to
buy multiple properties, and they wouldn’t take no for an answer,” says the
spokesperson. “They were trying to climb in and give her their deposits. She
had to lock herself in the trailer.”
Today builders in Phoenix will tell you that the new antispeculation clauses
in their contracts have solved the problem. However, the example of Zareh
Tahmassebian-he of the multiple houses and the knee that can drive-tells a
different story. He bought several of his houses in Phoenix after the rules
were in effect. How did Tahmassebian manage to circumvent them? It was, to
hear him tell it, relatively easy: Sales reps for some builders, including
KB Home, gave him a call every time a development was in danger of not
selling out. “I didn’t even care where it was,” Tahmassebian says. “You have
to be ready to jump.” (When told of this breach, KB Home spokesman Derrick
Hall is philosophical. “Is it a perfect system?” he says. “No, it’s not.
It’s a deterrent.”)
On several occasions Tahmassebian has even found himself at the grand
opening of a community-an event typically reserved for “end users,” as the
builders like to refer to people who actually plan to take up residence. The
openings are sales events where hopeful buyers are invited to gather with
their families for a lottery in which the lucky new homeowners are selected.
In oversubscribed communities the lotteries can get tense. Elsewhere, they
take on the quality of a new-community pep rally. When a winner is chosen,
the lucky family’s name goes up on the board. They get a button. Someone
takes a picture. Everyone applauds.
To keep up appearances, builders will often insist that Tahmassebian attend,
even though they know he’s an investor. When they do, he gets on a plane to
Phoenix, hops in his standard 300M, and floors it to the sales office. “It’s
a little uncomfortable sometimes,” he says. “I’m out there by myself eating
eggs Benedict with all these families. Every time they announce a name,
there’s a bunch of clappers and noisemakers going off while I’m out there
pacing.”
Since last year, when the Las Vegas market began to cool off, Tahmassebian
has made more than 20 trips to Phoenix to scout, buy, and inspect houses. He
is obviously a quick study. At age 17 he learned about leverage from his
cousin, who mapped out the principles on a napkin in a diner. (“You can buy
one $200,000 house with cash, or you can buy 20 with 10% down. Which would
you rather have?”) At age 18 he bought his first home for $126,000, watched
it appreciate, and decided not to go to college. (He sold 2 1/2 years later
for $369,000.)
Tahmassebian bought his eight Phoenix houses with 10% down, a total
investment of $150,000 including closing costs. To buy seven more houses, he
entered into a limited partnership with his best friend’s dad, who lost
money in the tech crash and is looking to make it back in the housing
market. Each contributed half the down payments.
The houses aren’t exactly throwing off cash: Tahmassebian estimates that he
loses $3,500 a month on them, since he doesn’t bother to rent out all 15.
“If I’m negative on a few, that’s okay,” he says. “I’m in it for the
appreciation.” In seven months, he estimates, the 15 properties have
appreciated from $2 million to $3 million. He’s planning to sell in the next
two to three years, but if the market does crash-which he doesn’t expect-it
wouldn’t be a disaster, he says: “You just hold on till it comes right back
up.”
Austin: The nomads
Cercheerck. I am sitting in the back seat of a Ford Excursion with Stephen
and Crystal Wong, the second of a two-car real-estate-speculation convoy
that is cruising through Austin. Cercheerck. The voice of Tom Polk, the
broker leading the tour from his black BMW, comes over a walkie-talkie.
“Now, you know, there’s something important that separates Dallas and San
Antonio from Austin,” he says, his voice crackling. “It’s a little thing
called quality of life.”
Polk is laying on the hard sell because the Wongs are currently in the
middle of a three-day, three-city tour of Texas-San Antonio yesterday,
Austin today, Dallas tomorrow-during which they plan on picking up 15
houses. Though their permanent residence is in San Francisco, the Wongs, who
run a Home Instead Senior Care franchise, have already purchased 12 houses
in Phoenix over the past 18 months. In that time, they say, those properties
have appreciated 47%, to $2.4 million.
Now the Wongs are starting to sell a few of their single-family homes in
Phoenix and roll that money into the next market that looks primed for
serious growth. Outside of Florida, there is no obvious successor, which for
many has meant that now is the time for a longer-term growth play. Though
most of the largest Texas cities have experienced stagnant housing markets
in the past several years, many speculators have the state on their radar.
The numbers are beginning to reflect that: Single-family-home sales volume
in Austin jumped 38% in March over the year before.
The Wongs seem to have arrived with their minds made up. “Dude, this place
is a total steal,” says Stephen, 35. “It’s like a penny stock!” He is
wearing mint-colored slacks and a slate herringbone jacket with a
yellow-and-blue-striped button-down shirt. A pair of dark sunglasses hangs
from his collar. As Tom the Broker recites local landmarks (“And there is
the bar where Jenna Bush got busted for underage drinking …”), Stephen
explains his thinking. “I definitely don’t feel like America is going to be
like this forever,” he says, looking out at the newly developed houses that
dot the Texas hillsides. “You need to stake your claim now. It’s like the
Wild West again. Actually, I’m kind of shaking right now. I feel like a
Coronado or a Cortéz.”
Behind the wheel of the Excursion, 25-year-old Crystal-in a cream suit, pink
shirt, pink heels, and matching pink watchband-is so eager to move the tour
along that she floors it past the black BMW until Tom radios over a request
that she get back in formation. “Come on, Tom,” she practically shouts when
the radio is safely off. “I want to buy!”
If the Wongs and their broker are not on exactly the same page, it may be
because they have never met before. As the urge to invest in properties far
from one’s hometown has surged, companies have sprung up that help put
buyers in touch with hot markets. The firm that matched the Wongs and Tom
Polk is the ICG Group, a full-service property-management company with
offices in San Francisco and Tel Aviv. Though Polk also gets many
out-of-state investors independently through the Internet, his connection
with ICG has changed his business. “I used to get about 20% of my business
from investors,” he says. “Now it’s 80% investors and 20% homebuyers.”
As the convoy comes to a stop at the last of six largely indistinguishable
developments on the tour, the other potential buyers on the trip, Scott and
Lynda Hibner, emerge from Tom’s BMW. The Hibners, who live in Phoenix, have
invested only in Las Vegas so far. Scott sees the property-value tidal wave
moving east, so the Hibners are planning a “relo” to the Austin area. “It’s
been moving from California to Nevada to Arizona,” he says. “It’s coming
this way. Or it seems to be. We’re hoping to find another Vegas, but I don’t
think it will happen.”
With everyone in one place, surrounded by houses in various states of
completion, I ask them if they’re worried that they might be caught up in a
bubble.
“No, no-see, bubbles are for really high-priced areas,” Tom says. “It can’t
get much lower than here. In Texas the sky’s the limit.”
“Ah, that’s all guesswork and theory anyway,” says Scott. “Nobody really
knows.”
“It’s certainly not here yet,” Stephen says.
“Anyway,” Tom says, “that would be like your stockbroker telling you, ‘Don’t
buy Dell, don’t buy Whole Foods.’ Sure, the price is high-but it’s still
going up.”
“Yep,” says Scott. “They said that in California five years ago, and look
what happened.”
Satisfied, they let the talk wander to other subjects. The Hibners are
planning to look for an existing home they could move into in a nicer area.
Stephen and Crystal have decided to buy in all the areas where Tom the
Broker has invested in property. (“I’m going to be piggybacking on
everything you did,” Stephen says to Tom. “I’ll call you on Monday. I’m not
trying to-you know the market. I like what you like.”) As we get back in the
cars and part ways, another group of customers pulls into the development’s
sales center behind us.
Back in the Excursion, however, Stephen keeps the subject of the bubble
alive. “I love all the talk of the bubble,” he says. “It eliminates all the
chickens. Then I can buy cheap when the bubble does burst. But it’s
important to stay ahead of it. That’s why I’m liquidating in Phoenix to
start buying in Texas. You gotta keep the money moving.”
At the Lakeview Club in Oakland Park, Fla., a former apartment complex near
Fort Lauderdale that’s about to go condo, the line of wannabe buyers is some
40 strong. It is 10 a.m., and the first buyer arrived at 3 a.m. to stake out
a spot. By 11 a.m., when the sales begin, the crowd outside the
complex-which consists of 443 peach stucco units clustered around a
rehabilitated swamp, with prices averaging about $200,000-is getting antsy.
“Each year that I haven’t bought something, I’ve always said to myself,
‘Gee, I should have done it,'” says Darrell, a mid-30s hospital
administrator in a faded blue T-shirt, shorts, and a buzz haircut, who is
there to buy his first investment property. “It’s the only place to put your
money now to be sure of getting a good return.”
Several others in the line nod in agreement. “Oh, yeah, that’s what my uncle
says,” offers Cecilia Martinez, a 42-year-old billing agent dressed largely
in pastels, one of the few in line actually looking for a place to live. “He
says take money out of your IRA and put it in real estate.” (She hasn’t
yet.)
“I’ve had retirement accounts since 2000, and I’ve watched them dwindle to
almost nothing,” chimes in Randy Leonard, 46, an oncology nurse. “Had I had
it in real estate, I’d be sitting pretty.”
Indeed. Since March 2004, home prices in Fort Lauderdale have jumped 31%,
Port St. Lucie 39%, Cape Coral 43%. In Miami, the euphoria has reached, in
many cases, truly over-the-top proportions. Consider a party thrown last
month by Fortune International (no relation to this magazine), one of the
largest developers in town, for a soon-to-be-constructed condo called the
Ivy. White stretch Hummers carried guests between three party locations as
bikini-clad models decorated with real-estate-themed body paint paraded amid
massage tables and lychee martinis. Brokers and investors mingled with
choice buyers and hotshot international clients.
The party was well attended, because getting in early on a Florida condo at
pre-construction is the new version of scoring a spot in an Internet IPO.
But while connected insiders usually get the choicest deals, most developers
also host a public sale in which they release the remaining units to the
masses. Those masses, many of whom are newbie investors, are piling in-in
what feels like a last desperate attempt to get rich. The result is a sight
that has become as much a part of Florida scenery as the palm tree: the
condo line.
Because projects can sell out in a matter of hours, buyers will do nearly
anything to assure themselves a piece of the action. They camp out for days
in lawn chairs and beneath umbrellas in the hot sun. They bring coolers of
food and drink. They bicker over who is ahead of whom. “Riots break out from
time to time if the right security is not in place,” says Kim Kirschner,
head of Kirschner Realty in Hollywood, Fla.
Back at the Oakland Park condo sale, a team of 30 or so Kirschner employees
wearing royal-blue shirts and black pants are scurrying around shuffling
buyers through “model units” and into the “map room,” where they pick
remaining units from a giant aerial view of the development. As the day goes
by and more condos sell, the Kirschner brain trust gathers behind closed
doors to gradually raise prices for the remaining units; one unit is rumored
to be up $10,000 by early afternoon. As the development fills and word of
further price increases spreads, the pressure mounts for buyers toward the
back of the line.
“It’s like any game. It’s the guys who get in early and in the middle that
make money,” says John (he declines to give his last name), a chiropractor
who is on hand with his girlfriend, a nurse in a white tank top and hot-pink
lipstick who’s also in the market. He has bought three other investment
condos in the area already this year. “It’s the guys at the end who are left
holding the bag.”
It’s impossible to tell how far a mania will go before it turns. But even
some diehard speculators, like Jason Mitchell, are starting to get nervous.
Before graduating from Syracuse Law School in 2003, Mitchell, 31, flipped
two houses in Las Vegas in one month each. “It was a gold rush,” he says.
“Everyone was flipping houses as fast as they could. You would go to dinner,
and the waitress had just moved from L.A. and flipped two houses in her
first week.” In total, Mitchell and his wife, Connie, bought seven
investment properties in Las Vegas. Today, however, they have sold all but
two. “I had almost like a eureka moment,” he says. “It just hit me that I
was seeing the same group of other investors at every development site. They
were buying six to seven houses each. They were buying in other people’s
names. I thought, ‘My God, the bottom is about to fall out of this thing.’
So I stopped.”
Further east, in Phoenix, sisters Cheryl and Carolyn Lawyer, 45 and 34, are
also feeling a little wary. They both quit their jobs last year (as a
marketing consultant and a manager at a semiconductor company, respectively)
to rehab houses together. Now they often get calls from friends just getting
in the game. “We’re worried everyone’s in denial,” says Carolyn. “There are
a lot of people getting in at the top of the market, and you could hear some
horror stories if it doesn’t last.”
Then there’s Eric, 39, a Wall Street banker who also declines to give his
last name. He recently put a $25,000 deposit down on a $650,000 condo in
Miami that he heard about from a broker friend at the Maley Group, who had
recently helped him buy another condo in New York for $1.25 million. The
Miami waterfront building has yet to be constructed, so he’s watching and
waiting from the safety of his Manhattan office. “I read all the stories
about real estate and condos in Miami,” he says. “You know, saying,
‘Everyone is a speculator,’ and ‘It’s a herd mentality.’ I see them all the
time now, and I wonder: Am I one of those people?”
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Reporter Associates Marilyn Adamo, Elias Rodriguez, Oliver Ryan, Christopher
Tkaczyk, Jia Lynn Yang.
Feedback [email protected].
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