Buying New And Flipping!?

hey everybody,

I live in a hot market. New single families, condos, townhomes are being sold and during the building phase (1 year or so) values are rising 20-50K. How about buying a condo for say $250K, holding it until complete and flipping it after settlement? No rehab costs, everything is new. Other than the obvious risk that the props will not appreciate, are there any other pitfalls?

Comments(8)

  • Boston5th April, 2004

    In MA, you cannot close on a condo until it has certificate of occupancy. Thus, properties can (and are) put under agreement (under deposit, if you prefer) during the build out or construction phase. However, they do not close until the property is complete, final building department sign off is acquired and the C of O is in hand. In this circumstance, holding cost is not an issue. Thus, there is one "pitfall" you do not need to ponder.

    One of my partners does just what your describing with one exception; he never closes on the property. Instead, he sells the purchase agreement and therefore takes the profit without any of the closing costs. It should be noted that some sale agreements prohibit such a transfer or assignment.

    Bottom line: aside from the obvious risks, this is a good (and easy) way to make money in a rapidly rising market.
    Having said that, the devil is in the details. Use a qualified attorney.

    Good Luck!

  • commercialking5th April, 2004

    As a general rule I'd be nervous about this unless you were getting a pretty good discount for buying in the construction phase.
    Lets put it this way. Some professional developer has price this unit, after considerable attention to the market and careful analysis at $250,000. In addition the developer, who has many (perhaps hundreds) of these units to sell, has a big advertising budget (tens of thousands of dollars at least) to raise a lot of "buzz" about his product.
    Now you, a virtual newbie, are going to come along and say that he's got the pricing wrong and that you, as an amature can do a better job of marketing than his billboards and tv time.
    Possible, but not likely. More likely is that you are hoping that inflation and/or a hot market will cause the retail price to climb. Also unlikely. If the market is that hot then other developers will build more units until the market is over built. It is possible that your timing is right-- but be prepared, if necessary to sit on this unit for 3 to 5 years incase you are wrong.
    Again, if you can get a substantial discount for buying early and sell before you close then thats different. But have a buddy who makes a pretty good living buying units like this at a substantial discount 2 to 10 years later when the investors are tired of owning them.

  • InActive_Account5th April, 2004

    I have been involved in building/construction for 30 years and developing for 25 years. What your friend is doing speculating which can be extermely risky. Many people have made a lot of money doing this, but many have lost money.

  • jankers6th April, 2004

    Assigning the contract makes sense. Would FMV be determined by the new, higher prices that the builder charges as the construction project nears completion? And, would a new appraisel be required should the assignee need to get a loan?

    Hey Boston, Any clarification on how your partner does this would be very helpful.

    thanks much!!!

  • moveitnow7th April, 2004

    The risk is not finding someone to assign to, which means you lose your deposit with the builder. Builders lose quite a few people that can't qualify or get cold feet, so it isn't a huge issue, but it will not make them like you.

    However, if you are prepared to buy the property if you can't find someone to assign it to, then you can rent it or L/O to a buyer that doesn't quite qualify through the builder's mortgage broker.

    Good luck

    Peter

  • InActive_Account7th April, 2004

    Where I live, this is quite common because it's a hot market. I've never done it because the contract has to be assigned for it to make any sense to me. Many builders wont let you do that. You also have to state in writing that you are a owner-occupant (don't know the legal repucusssion of that item).

    Deduct the amount one expends closing with a builder and then closing again with a new buyer, plus holding costs, plus tax at ordinary income and there's the profit. It may or may not work out. This also presumes that the price is locked in at the signing of the contract. It becomes even more dubious if all you have is a place in line (reservation) on the builders list.

    It reminds me of the "bigger fool theory" which you need.. When rates jump, you better be out from under this ploy.

  • moveitnow7th April, 2004

    Don't know why the builder would care whether you are an owner-occupant, or did you mean the mortgage broker cared. That would make sense, since O-O loans are cheaper.

    Builders want to sell homes, period. My friend just signed for 2 lots in a new S-D on the first day they went on sale. They know he is an investor and will close. That's what they care about. If it is your first time with that builder, you may want a reputable RE agent take you, or come with proof of funds.

    Good luck

    Peter

  • jankers8th April, 2004

    Good info. It seems it's best to assign (if possible and prices were locked early) or hold and rent/LO. I was told by one of the builder reps (a lawyer, in this case) that only a Co-op can legally force you not to rent it out. In this hot market, people just want to be in the area, so a renter should be relatively easy (famous last wordssmile Thanks for the insights.

Add Comment

Login To Comment