I just walked out of the second recent condo conversion in a month that I saw back on the market way at about 30% of what it had sold for.  It had been ‘flipped’ in 2006 by some investors.  In my humble opinion, it seems suspicious to me when large numbers of foreclosures show up all at once in the same building.  There were eight or nine lock boxes on the door.   Postings in the windows.   hmm…

If you know me, you know that this is what I do.  I want to know why and how, so, I did a little checking in the MLS and public records.

  The unit I saw had previously sold for $204k but was now listed at $60,000 in a building that every unit had previously sold for over $150k.  A few even sold for up to $250k.   What makes it suspicious is that there were no real upgrades to justify 204k.  In fact, the value today is probably about $80,000 if it was cleaned out.   No electrical or plumbing upgrades to the building.  Some newer windows and a few new light fixtures in the hallway.  That’s it.    Now it is possible to get $160,000 for this type of unit if it’s done right.

 Some developers who do a killer job on the conversions do make top dollar.  They add roof top decks, change the curb appeal, improve all the common elements and put about $30,000-$60,000 into each unit upgrading the kitchen, bathrooms and finishes.  The units I saw at this place weren’t like that.   For this building though, the appraiser would have to be blind not to notice that the doors were missing handles and nothing that was described in the MLS was actually completed. (business center, fitness room, etc..) 

It’s painful to see because you really don’t get a redo on a condo conversion.  It’s to late.  The building is still a dump.  Can you imagine trying to coordinate an overhaul of the building with 24 different owners.  It’s going to be a blight to the neighborhood for a long time.

They bought the property for $2.9 mill and sold the units for a total of $4.8.   15 days after they closed on the property, they were already selling them.  6 at a time.  Many of the buyers bought multiple units.   They were 80% sold out in 2 months.  In the middle of winter during 2005-2006.  That was not a great time for selling condos,  even nice ones.

It seems like if you wanted to make 1.8 million fast the dirty way, you could get people who were going to file bankruptcy purchase these properties using stated 80/20 loans.  The paper values would support the apparent protection of the 1st lender and the 2nd would be carried back by the seller.  It’s all just funny money right?  Seller kicks back some money to the buyers for the ‘service’.  The buyers then try to rent the properties out and never make a payment.  When it all goes south, they just walk and let the properties foreclose.   Now, I’m not saying that is what happened here, but I do think it happens.

I know there are people who believe that the only one they’re hurting when they do this is the lender.  That frustrates me.  It gives the entire industry a bad name.  Especially when a lot of people need to work together to decieve the lender.  It’s no wonder that the agent that listed the property had his license just long enough to do this deal then leave the business by going inactive.  The building had been listed as having an agent owner so he must have been involved.  I wonder what his employing broker was thinking.  Probably wasn’t.  I wonder if the buyers weren’t actually in on it and had their credit ruined by an investor who made a lot of promises he didn’t deliver on.

I’d love to give you the address and name the players…but that seems to get people in trouble.  No, I can’t flat out say that there is some fraud involved but it makes you wonder doesn’t it.