The housing boom is over, but creative investors still make profits

By Robyn A. Friedman
The Sun Sentinel
Special correspondent
Posted September 11 2006

Vicky Kaye is accustomed to making a double-digit annual return in the oceanfront real estate market. And unlike many other area real estate investors, she's still doing so.

"I do about two or three deals a year," said Kaye, a licensed massage therapist who lives in Pompano Beach.

Kaye is a private lender who provides short-term financing for other real estate investors. She's been investing that way for five years and making 12 to 14 percent interest on each deal, as well as the return of her principal in less than a year.

"It's collateralized, and there are no complications," she said of the transactions.

Over the past few years, South Florida's housing boom has spoiled real estate investors, many of whom unabashedly brag about the killing they made flipping preconstruction condominiums, rehabilitating foreclosed properties or buying apartment complexes to convert to condos. But now that the housing market has tanked -- the inventory of unsold homes skyrocketed and sales have screeched to a virtual halt -- investors are becoming creative, segueing into new types of deals and properties in an effort to wring out profits in a challenging market.

"The latter part of 2002 to the second quarter of 2004 was the period of time when everybody jumped on the bandwagon, and all those condo flips occurred," said Michael Y. Cannon, managing director of Integra Realty Resources South Florida in Miami. "That was when the market actually peaked."

Today, Cannon said that many people don't know where to put their money.

"They're starting to put their money back into savings accounts, CDs and treasury bills," he said. "Instead of a 2 percent return, they can now get 5.5 percent, and although that return is less than the promised return they'd get on real estate, they want safety."

Others say that moneymaking real estate opportunities still abound in South Florida.

"There are more opportunities now than there have been in years," said David Dweck, a real estate agent with Re/Max Professionals in Coral Springs and an active investor the past 14 years. "With the market shifting, sellers are becoming more realistic and motivated. A motivated seller can mean a buying opportunity for an investor."

Where are area investors putting their real estate dollars now?

Commercial properties. Cash flow is the name of the game. Since investors can't count on short-term appreciation and a quick sale, many are seeking an income stream.

Michael S. Weiner, a zoning attorney in Delray Beach, has been purchasing buildings since 1991. He owns several buildings on Atlantic Avenue in Delray Beach that have retail and office space. He targets properties with "intrinsic value" and always buys to hold long-term. Weiner only buys properties in Palm Beach County. He recently bought a medical office building and is considering a post office.

"Real estate's the most intensive investment you can possibly have," Weiner said. "You've got to watch it."

Foreclosures
Michael Perlmutter has been a full-time real estate investor for more than six years. He's referred to in the industry as a wholesaler -- someone who spots homes in foreclosure or preforeclosure and then resells them to one of the 3,000 investors in his database, typically at a profit of at least $15,000. The buyer then rehabs the property and resells it for an additional profit. Even with his well-oiled machine, Perlmutter has had to adapt his buying strategy.

"Eighty percent of the part-time weekend investors who dabbled in real estate have folded," he said. "Now, I've got to work harder." Still, Perlmutter said he gets five to seven calls a day from people in financial difficulty looking for someone to buy their houses. "There's never been a better time than right now because of the supply," he said.

Preconstruction condos (yes, preconstruction condos).
Gone are the campers, the speculators who lined up -- sometimes for days -- to snap up prime condo units at early prices. At least one local expert thinks a market still exists for some of these condos. Mark Zilbert, president of Zilbert Realty Group Inc. in Miami Beach, said that half the buyers who hold contracts on preconstruction condos -- most of them real estate speculators -- don't want to complete the purchases on their condos.

"They just want their deposit back to get out of it," he said. "So an opportunity lies for someone approaching a buyer who bought an apartment in 2003 or 2004 and offering them their contract price."

Zilbert said that the investor has to be prepared to settle on the unit and hold it for a year or so. After that, he says, they should be able to resell the condo at a profit. "They'll probably see a 50 to 60 percent return on their money, which is a far cry from the 200 to 300 percent we used to see," he said.

Invest in a vulture fund. Many people are putting aside money to plunge into the real estate market in an attempt to swoop up bargains when they think the market has hit bottom. One of these is Deerfield Beach real estate analyst Jack McCabe, who has formed McCabe Acquisitions LLC for such investments. McCabe said that accredited investors of high net worth, institutional investors and other entities can participate in his acquisition firm as nonmanaging members. A minimum investment of $5 million is required. He plans to acquire blocks of condos in multifamily developments -- or entire projects -- in many markets in the country, with a special emphasis on Florida. And he hopes to purchase these properties from anxious sellers at a discount. "My acquisition group will acquire at early 2004 prices from developers and builders, or debt value from lenders," he said. McCabe said he's prepared to hold these properties for up to 10 years.

Invest in your own property. Consider remodeling your own home but do it wisely. With the right remodeling project, you can increase your home's value. According to Remodeling magazine, the average price of a midrange bathroom remodel is $10,499. When you sell, however, you'll recoup 102.2 percent of the cost of that remodeling job. Kitchen and bath remodels, as well as siding replacements and home additions, yield the highest return on your investment. Add a sunroom, on the other hand, and you'll recoup just 74.5 percent of your cost.

Look into other regions. Although South Florida is experiencing a housing market slowdown, markets in other parts of Florida and the United States remain robust. Many investors are flocking to Orlando to purchase condos and vacation homes for investments. Some are investing in commercial properties in Ocala and Jacksonville. While other areas may offer opportunities not currently available here, experts warn investors to be careful.

"If you're a small investor, you should never invest in anything that you can't visit in one day," said Integra's Cannon. "Stick to the neighborhood that you know or else invest in a REIT (real estate investment trust) or mutual fund that invests in real estate. Use common sense."

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