condo financing- no brainer???

[Ed Gieske]

I just don’t get it! I’ve been a business entrepreneur for over 25 years. I have recently shifted my business energies to my first love “Real Estateâ€. I have two partners that have been mortgage brokers for over ten years and one of them has flipped over 20 properties in the last 3 years. After months of research, I have realized that the BEST and most profitable area in Real Estate lies in Condos in Florida.
Right now, I could buy 150 Condos that were selling for $160K each, 2.5 years ago for 35K each today. The whole market has shifted. Condos use to sell for their selling and m,arket value. Today, most Condo developers have reverted their Condos to apartments to create cash flow and to cover their debt. In turn they have lowered their value. Now their developments are valued at a CAP rate of +- 10%. And are selling for 25K-35K each!
Please correct me if I am way off base!!!! But, If we can buy Condos at such a low price, and rent them with a 10-11% Cap rate (80%-95% occupancy Rate) and HOLD long for 5-10 Years, how are these Condos not pay their way ongoing? If they pay their way with cash flow, but even increase to 50% of their 3 years ago value, we could sell for a 2-3 hundred percent increase!
The math makes sense no matter how you slice it!
What I don’t have and don’t get is the financing. 100% financing seems to have disappeared, JV financing seems to be too rich, and nobody seems to want to enter this arena!
If anyone has an idea to facilitate this type of deal, please step up, I am all ears!!!
Thank You,
ED

[Jon Holdman]

There's quite a bit of discussion here about condos in general and FL condos in particular. The general opinion seems to be that they are extremely risky.

Many projects have numerous foreclosures with banks who are holding the REOs units or non paying owners refusing to pay HOA fees. HOAs are going belly up or assessing the few remaining owners exorbitant fees.

Its unclear to me that there is any demand for some of these units. They were built on spec, mostly for out of state investors, and so many have been built they may never be fully occupied.

Many of these projects are so broken they're off limits for any sort of conventional financing. You say JV financing is too rich, yet that or some sort of hard money is the only thing you're going to get for a project like this. If you get into a project like this, your buyer's aren't going to be able to get financing. That means you're going to have to offer owner financing at much more typical rates in order to get buyers, and hold those notes until you can get the project to qualify for warrantable financing.

You imply you want 100% financing. That's not going to happen on any real estate investment right now. 20-30% down is the norm. If you don't have your own cash, you're going to have to put together cash from partners, friends, or family to jump start this business.

You say "increase to 50% of their 3 years ago value". What evidence do you have that will possibly happen? I don't believe it will any time soon. Many stocks that zoomed up in the dot com bubble are still not back to those prices 10 years later. Real estate just ended a bubble of similar, if not bigger, proportions. We're going to be quite a while working off that bubble. Add in the double whammy of a bad economy and tight lending by banks and we're looking at a long slog to work back up. Add in the triple whammy of speculative overbuilding in FL (and other areas, but FL was a biggie) and its going to take even longer to come back. And don't forget about the dreaded Chinese drywall.

There may be an opportunity here. But its certainly still a speculative opportunity.