How Smart Is 'Flipping' Real Estate?

May 4, 2006— -- Though the temperature hit 100 degrees in Delray Beach, Fla., last summer, eager buyers lined up and waited outdoors for days.

Was it Springsteen tickets? A free tank of gas? Neither of these.

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The men and women waiting for this modern-day gold rush to begin were looking to buy condominiums in south Florida, a real estate market that over the past four years has become one of the hottest in America.

But is it overheated?

New Jersey native Jay Lutz didn't think so when he and his wife purchased a condo unit in Delray Beach's Pineapple Grove Village that he never planned to move into.

"We didn't get our first choice or our second choice, but we're pretty happy with what we got," Lutz said.

Like other buyers, the Lutz family was happy to spend $350,000 for a one-bedroom condo and up to $800,000 for a three-bedroom unit -- only to resell those units immediately.

"If I can get a buyer and I can flip it right away, I'll do it," Lutz said.

"Flipping" in real estate lingo means buying and quickly reselling properties for big profits. In south Florida and other popular real estate markets, it got to the point where people were buying and flipping contracts on condos before they'd even been built.

The preconstruction market in Miami has seen some of the highest investor returns in the United States. "People are seeing 2, 3, 400 percent returns on what they invest in a construction condo -- over about a year," Mark Zilbert, a Miami real estate broker, said last year.

"What kind of drives the desirability in the Miami area is where the waterfront locations are," Zilbert said.

Zilbert estimates that at one point, up to 80 percent of condo purchases were purely speculative investments, made by people with no plans to ever live in one of the tens of thousands of new condos transforming the Miami skyline.

Though some people who bought in plush waterfront towers intended to move in, the profit potential became too tempting. That's what happened to condo owner Darryl Randall.