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Philadelphia Condominiums- Are They all ripe for flipping?

By Mark Wade

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Published: 13Nov2007
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As a Center City realtor in the downtown Philly area for over nineteen years, I am often asked whether or not a certain condo-be it an Old City loft, or a Rittenhouse Square penthouse, is "flip-worthy". Often times the answer is yes, but more often than not, the answer is no. There are a number of deterrents which may limit one's ability to flip a condominium in the downtown Philly area, and make a profit. From high in and out costs, to an abundance of existing inventory, to the plain nature of Philadelphia real estate, the notion of making a quick buck can sometimes be more of a myth than a reality.

To begin with, the transfer tax imposed on the sale of any piece of real estate in Philadelphia is high. The city imposes a four (4) percent transfer tax on every sale. Almost always split between buyer and seller, this fee adds a substantial weight to costs of attempting to turn say a Rittenhouse Square condo, or an Old City loft into a quick buck. So to buy, and to turn around and sell, one would need to subtract four percent to their potential profit margins-two percent upon purchase, and then another two percent when they go to sell the property. Add this to the normal fees associated with buying and selling Philadelphia condos, and you have just had a fairly large bite taken out of your potential profits.

Add that element to the fact that if you are buying, say a high rise luxury penthouse condo in Rittenhouse Square, in a building with two hundred units in total, you would need to probably wait until the building sells out, in order for there to be demand for your unit. I mean, why would someone want to buy your condo, if the developer still has 74 units to unload? That particular developer may be able to offer incentives to attract buyers-be it an upgraded bathroom, a flat screen TV, or otherwise do some customizing to the unit that you may not be in a position to do to your lone unit that you have on the market. So why would a buyer want to look at your unit-a unit you have clearly marked up in price (to cover your in and out costs, not to mention your profit margin), when there is some substitutability in the market place for him or her to go directly to the developer, and strike a deal? Unless you got in on the "ground floor" of a new Philadelphia condominium project, and the developer simply "gave" you a unit at a steep discount, then there would really be no incentive for another buyer to come along and pay you a premium for your lone unit.

Lastly, I see one of the main restrictions or limitations to flipping a condominium in Center City to be plain old greed. Let's say a buyer buys a condo in Rittenhouse Square for any given price. I often times see that unit come back on the market rather quickly, asking a thirty percent markup. But one needs to ask, why? Where did that instant appreciation come from? Thin air? Is there any concrete reason why another buyer would be willing to pay such a steep increase in price for a Center City condominium? Am I missing something here? Philadelphia real estate is not the kind of investment that generally has such a rapid appreciation rate. We are the classic example of the tortoise and the hare....and we are not the hare. Slow and steady had always won the race for those looking to invest into, say, an Old City loft, or a Society Hill condo. No bubble here as values have a tendency to creep along at a slow steady pace. And even if the developer has raised his prices twenty percent since you bought your condo, that doesn't mean that all Philadelphia condos have risen twenty percent in value. An asking price is just that-an asking price. One should not assume that such a price is reflective of the true market value of real estate in Center City.

I hope I have adequately illustrated that some condominiums in Philadelphia are not worthy of a quick flip. Real estate in Center City is more of a long term "hold" investment. And generally speaking, with the barriers to resale-high in and out costs, coupled with an bit of an excess in new construction, high rise condos in the downtown area, one might be better off buying a condo that has little substitutability, and is more of a "dog"....a unit that they can buy that is an ugly duckling, and turn it into a swan. I believe buyers want to see value for what they are buying, and cosmetic improvements almost always add up to an appreciable increase in resale value, whereas a simple flip might limit one's ability to make a profit on such a buy and re-sell approach to looking for a profit.

As a REALTOR and homeowner here in town, I'd say that your best bet here in Center City Philadelphia is a long term approach. Your steady property value appreciation will pay off in the end when you are ready to sell a few years down the line.

Mark Wade is a Philadelphia REALTOR who is "the" Center City Philadelphia condominium specialist. Mark's vast knowledge of what's trendy and which finishes buyers look for when selecting a home hope both buyers and sellers of Philadelphia real estate make the most of their investments. View Center City condos for sale at http://www.CenterCityCondos.com

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