Jump to content
House Price Crash Forum
Sign in to follow this  

Home Flippers' Investments Flop

Recommended Posts


Sunday, May 21, 2006

PORT ST. LUCIE — Joe Passarelli wakes up anxious and sweaty some nights, wondering how much longer it will take to sell his never-lived-in townhouse south of Stuart.

Despite slashing his asking price by $55,000 to $285,000 and keeping vigil at sparsely attended open houses for six months, he still has no takers.

"They come, they look, they give a low-ball offer and they leave," said Passarelli, 50, a New York native.

If he doesn't sell the four-bedroom home, he'll have to walk away from contracts on two other investment homes — one in the new Port St. Lucie community where he lives and another in West Palm Beach. If he pulls out of those deals, he's down $80,000.

"I was never much of an investor before this wild craze began, and somehow I backed into it," Passarelli said.

So it has gone for many less-experienced flippers who bought heavily into pre-construction deals in large communities on the Treasure Coast. Instead of the quick riches they expected, many have encountered a slow market in which buyers are hard to come by.

Some are stuck carrying mortgages longer than expected, cutting their asking prices or walking away from contracts altogether.

The driving force: Too much competition for a diminished pool of buyers.

Just in Martin's Crossing — one of the largest new communities in Martin County — 81 of about 500 completed homes were for sale last week, not including many listed by owners. In its sister development in St. Lucie County, Newport Isles — a subdivision east of Interstate 95 in Port St. Lucie where Passarelli lives — 84 of 403 completed homes were listed with an agent.

Meanwhile, the communities' builders, Centex Homes Inc. and Lennar Homes Inc., also are continuing to jockey for buyers. Passarelli said the builders are undercutting him and other sellers as they try to unload their inventory.

The very communities that most attracted investors when the market was flying high during and before 2004 are causing visible problems as home sales slow.

"Their thought was, 'I'll make $25,000 on each home, or $100,000 on each home, and I'll get rich,' " said Bradley Hunter, South Florida division director of Metrostudy, a West Palm Beach-based housing research firm. "And for a while there, people were able to achieve that. But those days are gone."

Passarelli made out well last year, grossing about $100,000 on a home he flipped in St. Lucie West and an additional $50,000 from his mortgage and real estate business. But this year is emerging quite differently.

"The end result is it may have to all be given back," he said.

'Like a terrible ghost town'

It's not clear how many of the homes in Martin's Crossing and Newport Isles were sold to investors, but some telltale signs indicate that flippers flocked to the projects: "For Sale" signs peer from curtainless windows, and real estate agents' lockboxes are affixed to doorknobs.

For full-time residents such as Lou and Marie Cucci, among the first families to move into Martin's Crossing in December, the result is downright depressing. On a block full of homes, the couple have few neighbors. Across the street and on both sides of them, homes sit empty.

"There are more places for sale than occupied right now," Lou Cucci said on a recent afternoon while tending his yard.

In Newport Isles, Passarelli said he and his wife take walks after dinner to count the lockboxes. As an investor who's also living in an investor-laden community, he sees all sides of the fallout.

"I came up from Boca with my wife and my daughter. We thought we were going to meet new neighbors and new friends, and it's been like a terrible ghost town," Passarelli said. "This is not family living as they advertised it."

Another buyer in Martin's Crossing, Josh Folds, intends to move into his home at the end of the month — but he said he won't mind the lack of neighbors.

"It's going to be really quiet, which is great," he said.

Yet the privacy hasn't helped sell the house his father-in-law, Dennis Fano, bought there. It has languished on the market for more than five months.

Fano, who lives in Palm City and has invested in real estate for more than 30 years, said he will ride out what he views as a market correction.

"We had a fantastic boom that was kind of unrealistic," he said. "It was like the Internet bubble."

Metrostudy's Hunter said it's unclear whether flippers who bought in 2004 or earlier will turn a profit. For investors who signed a deal last year, he had a clearer projection:

"My sense is that people who bought an investment in 2005 are probably not going to make money. A lot of them, I think, will lose money."

Some investors cut losses

Hoping to avoid that fate, some investors have resorted to unusual tactics to lure buyers.

One in Martin's Crossing, a former commodities trader who lives in Palm Beach Gardens, offered to give away a flat-screen TV. The investor, who asked not to be identified, also intercepted buyers approaching the community's welcome center, then redirected them to his home.

After carrying a mortgage for about six months, he finally sold one of his single-family homes in April for $350,000 — less than the $353,000 he paid. He earned enough off a second investment home in the community to recoup his losses, but some of his friends weren't so lucky. One walked away from a $40,000 deposit.

In all, the investor has bought and flipped 15 to 20 homes in South Florida, "and I've never had an experience like this," he said. Passarelli and others said homes in Martin's Crossing were even more difficult to sell because the developers neglected landscaping and allowed man-made lakes to dry up.

Some buyers paid hefty premiums for lakefront lots, but with the water drained, the lakes looked like giant craters. Martin County officials have stopped allowing any more homes to be occupied in Martin's Crossing until Centex completes upgrades to two county sewer plants needed for irrigation there.

With no luck selling his Martin's Crossing townhouse, Passarelli asked Lennar to release him from the other two houses on which he has contracts — in Newport Isles and Baywinds, near Okeechobee Boulevard in West Palm Beach — but the builder has repeatedly denied his request, he said.

Fearing they'll lose more if they hang on to homes in the community, some investors are walking away from deposits of $30,000 to $50,000, said Stuart-based real estate broker Mike Morgan, who sold several homes in Martin's Crossing.

"What happened there is no different than what happened in the condo market and everywhere else: greed, greed, greed," Morgan said.

'Never, ever, ever again'

As with the Internet boom of the late 1990s, those who stand to lose most in this shifting market are novice investors and those who bought too much too late.

Elizabeth Weed and her cousins were among the first-time buyers who got sucked into the craze. Early last year, they organized a girls' day out to the sales office at Martin's Crossing, where they quickly found themselves buying the pitch.

"The exact words that were told to us were, 'Oh, you're going to make money. It's just a matter of how much you want to make,' " said Weed, 59.

Within days, each of the four women plunked down a $25,000 deposit on a 1,600-square-foot Lennar townhouse in Martin's Crossing, locking in the $249,000 price.

Now, three of them are considering a lawsuit against Lennar and Centex, claiming the developers misrepresented how visible a nearby trailer park would be from their homes, and the fourth lost money on the home she finally managed to resell.

"It's not as if we were these great big investors. The four of us said, 'Let's get together and do this.' Never, ever, ever again," said Weed, who splits her time between Stuart and Breezy Point, N.Y.

She said salespeople for Martin's Crossing also told her and her cousins that only about 20 percent of the buyers in the community would be investors.

"What they tried to sell us and what they actually gave us were two different things," she said.

Morgan said Martin's Crossing townhouses were "the worst of the worst" for investors who bought there. He hosted open houses for clients, including Weed's cousin, for several months, but few buyers were interested.

"None of the people wanted to buy any of those units because they backed up to the highway, they backed up to a trailer park and there was no parking," Morgan said.

How he finally sold: He offered a $5,000 bonus to the agent who found him a buyer.

Builders try to limit flipping

Many buyers now say Centex and Lennar should have taken more steps to keep investors from overrunning the communities. On Centex's Web site for Martin's Crossing, this note greets visitors: "Centex will only sell a home to an individual that intends to use the home as a primary or secondary residence."

The policy took effect in June 2004, the statement explains. What it doesn't reveal is that although Centex was the master developer, Lennar built many homes there without imposing such restrictions.

Centex executives could not be reached for comment on Lennar's policy, but Kathleen Breland, vice president of the company's Treasure Coast division, said this of Centex's anti-flipping rule:

"We don't want to be in the position of having to compete against our own home buyers six months, nine months down the road."

Lennar representatives did not respond to requests for comment, but Chief Operating Officer John Jaffe said during a conference call in March that the Miami-based company was working to limit flipping in some multifamily developments in Florida by "implementing anti-speculation addendums that restrict the ability for those buyers to resell their property in the first 12 months." Public records filed last month in Martin County show Centex has placed deed restrictions on its homes, requiring buyers to occupy the property for a principal or secondary residence — or rent the property — for at least a year.

How enforceable the restrictions are is another question.

"They're a fairly recent phenomenon," said Cynthia Spall, an attorney with Gunster, Yoakley & Stewart in West Palm Beach. "Because of the market conditions, developers have started putting those in to protect themselves from competition while trying to sell out their product."

But they haven't yet been tested in court, she said

Share this post

Link to post
Share on other sites
"I was never much of an investor before this wild craze began, and somehow I backed into it," Passarelli said.

It's the same here. People have bought into the hype and it's time to meet the reaper.

Share this post

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 336 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.