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EScroogeJr (< 20)

The "plight" of a condo flipper



January 19, 2007 – Comments (0)

Here is an article in the Times about how "bad" the real estate market has become.


There is an "unfortunate" investor who bought a condo in 2004, and a "smart" agent who talked him out of buying five:

"Take the owner trying to sell a spacious two-bedroom condo for $879,000 in the former Columbia Hospital for Women, which closed in 2002, in the Foggy Bottom neighborhood of Washington. In 2004, the investor was so confident that he would make a handsome resale profit that he told his agent, Thomas P. Murphy, he wanted to buy five condos. Mr. Murphy said he flatly told his client he would only assist him in purchasing one unit in any one building.

He needs $890,000 to break even, but the offers are at $800,000 to $840,000,” Mr. Murphy said. “He does remember that I told him he was not getting five of them.

Could he rent the condo? Yes, but that option is not appealing, either. Mr. Murphy estimates that the unit could rent for $4,000 a month, far short of the $6,800 a month the condo costs in mortgage interest, maintenance fees, insurance and taxes.

How tragic indeed! The "unhappy" investor is getting back at least 30% of essentially all of that $6,800 from the IRS, paying something like $4,800 a month. Or, actually, he is paying $800, the other $4000 is payed by the "intelligent" tenant. In a year he will raise the rent to $4,200, in 2 years - to $4,400, and 3 eyars to $4,600, in 4 years - to $4,800, and from that point on, the tenant will kindly pay the investor's ownership costs in full, and then some extra. Meanwhile, as soon as prices resume their growth, the condo will begin to put some $50,000 of new equity into the investor's pocket year after year after year. Is it clear now why the investor wanted to buy 5 of them?

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