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Making a quick buck in real estate

Some shrewd twenty-something investors in Washington, D.C., are shunning the stock market and investing in real estate instead. CNBC’s Diana Olick reports.
/ Source: CNBC

Chris Schartiger, a twenty-something in Washington, D.C., recently made $10,000 in six days — maybe not in paper money, but definitely on paper.

He put down $5,000 for a condo in the D.C. area and a week later an identical one sold for over $15,000.

“For me, it was a no-brainer to go into real estate with the housing market as hot as it has been recently,” Schartiger said. “People are making 20 to 25 percent easily, so even if we make 10 percent, or 6 percent, that’s better than the market’s doing recently.”

Schartiger may sound like a professional real estate investor, but he is in fact a 25-year-old investor and one of a growing group of young real estate speculators buying condos, often before they are built, and using them to turn a fast profit.

In Washington, D.C., home prices are appreciating at more than twice the rate of the national average. Thousands of new condos are going up, and they are selling for upwards of $1,000 a square foot.

The National Association of Realtors, an industry trade group, estimates that 23 percent of all homes bought in 2004 were for investment purposes. So who are these investors? As with the high-tech bubble in the late 1990s, some of them are shrewd twenty-somethings like Schartiger who see an endless landscape for profit.

“The whole [housing] area in Washington is really moving very, very quickly,” notes Michael Darby, a principal at Monument Realty, a Washington, D.C., real estate developer. Most new housing complexes are selling units even before construction is completed, Darby adds.

Combine that red-hot housing market with low interest rates with ever more creative ways to borrow money and it seems the current estate market is windfall for the young investor. But seasoned realtors are concerned that these speculators are inflating the housing bubble by creating phantom demand.

According to David Lereah, chief economist at the National Association of Realtors, these investors’ speculative behavior is making some local real estate markets more vulnerable to price bubbles, which may soon burst.

But Chris Schartiger doesn’t see things that way. With the current government in Washington, D.C., the job market will always be strong, he says. And with the easy money he is making he has extra funds to go out and buy another condo, or studio, and he can rent that out as well, he says.

But next time he’s out looking to buy a condo, Schartiger might not find a welcome mat waiting for him.

Most newly-built condos require a buyer to occupy the property for at least six months. That’s not a big deal if you’re young and single in the big city, but some concerned developers say if they see a guy with speculator written all over him, they simply won’t sign the deal.

The thinking is speculators are only looking to flip a property, or sell it quickly for a profit. In many cases, these speculators are only putting down a small deposit that they are willing to lose if the market drops sharply. That leaves the developer with a property that he could have sold to a legitimate homebuyer for a lot more money, and now has to sell for a great deal less.