Riding the Boom (FORTUNE, 2005)

July 14, 2013: 5:01 AM ET

Editor's note: Every Sunday we publish a favorite story from our magazine archives. In the July 22, 2013 issue of FORTUNE, we published an excerpt from assistant managing editor Leigh Gallagher's new book The End of the Suburbs. This week, we take a look back at the boom of the suburbs. 

They snap up real estate, flip it, then chase the next hot market.They're the new day traders--and they're dancing on the edge of a volcano.

By Grainger David

REPORTER ASSOCIATES Marilyn Adamo; Elias Rodriguez; Oliver Ryan; Christopher Tkaczyk; Jia Lynn Yang

Zareh Tahmassebian is on the way to look at two of his houses in Phoenix. He is lost. Most people don't get lost driving to their own residence, but then, Tahmassebian has never actually been to these particular homes. There are a few reasons for that: (1) He has no intention of ever moving into them, (2) he lives in Las Vegas, not Phoenix, and (3) he owns six other houses--and a half share of seven more--in the greater Phoenix area. "Sometimes it's hard to keep track," he says.

Riding the Boom1Tahmassebian, just 22, is a big, affable guy who dresses the way a budding young speculator should: black trousers, a blue-and-white-striped shirt, cuff links, a Cartier watch, black suede loafers, and rimless purple sunglasses. The son of Armenian immigrants, he has spent the past four years in Las Vegas working as a mortgage banker, a job that he says paid him $250,000 in salary and commissions last year. He has taken the day off to fly to Arizona for a "frame inspection." The houses he's inspecting are somewhere inside the Cholla Ranch development that's being put up by KB Home, one of the nation's largest builders. Right now he's in the general area--cruising southeast down Highway 10 in a white Chrysler 300M rental car--but lacking specifics. "Is that Tempe?" he asks. "I think I have some houses there."

After several uninterrupted miles of cactus, desert, and tumbleweed, it becomes clear that he's missed the turn, and he exits the freeway while dialing his broker. "Papa John!" Tahmassebian says into his cellphone. "Where are my houses?" To get more help, he dials KB Home on another phone, and soon he has a gleaming silver clamshell at each ear. For a moment the car drifts dangerously across the exit ramp, until I reach over to grab the steering wheel. "It's okay," Tahmassebian whispers, nodding toward the place where his trousers meet the bottom of the wheel. "This knee can drive."

When we finally arrive at the first construction site, on Paradise Lane, Tahmassebian begins his inspection. "See this wood?" he says, gesturing to the slatted frame of the unfinished house. "This wood made money for me! I don't own it--but I own the rights. I put a 10% deposit down, I haven't even made a mortgage payment yet, and it's already gone up $45,000. What a country!"

THIS COUNTRY is obsessed with real estate. The number of chapters of the National Real Estate Investors Association has jumped from 44 in 2002 to 170 today. Eighty-six books on real estate investing were published last year, nearly three times as many as in 1998. Even reality TV is getting into the act: This summer the Learning Channel will air a show about people flipping real estate in San Diego, hosted by a woman who has bought and sold more than 40 properties in the past seven years.

And the appreciation! Surely you've heard, because real estate profits are the kind of thing that no one--your neighbor, your boss, yourself--can seem to shut up about. Since 2000 the median sales price of a single-family home has jumped 77% in New York City, 92% in Miami, and 105% in San Diego. "Nationally, all levels of real estate activity are at all-time highs," says economist Mark Zandi at Economy.com.

Of all the phenomena that the boom has wrought, perhaps the most telling is the return of speculators like Tahmassebian. Speculators are creatures who emerge every decade or so to exploit the hot business cycle of the moment--those whose aim is to ride the wave to its highest point and then, with miraculous skill and timing, get out before it crashes on all the greater fools beneath. (They are also, like fishermen, more than willing to exaggerate the size of their catch.) Lately their numbers have been multiplying with every cocktail-party tale of a dentist, florist, or shrink buying "threesies" and "foursies" (three or four properties at a time, in speculatorese) and making a killing. In March the National Association of Realtors released a study estimating that investors represent 23% of the homebuying public. That number includes second-home buyers; mortgage lenders estimate that pure investors account for a hefty 10% of all buyers. Historically the U.S. rate has been half that.

"You're seeing people now for whom investing in real estate is their life," says Jay Butler, director of the Real Estate Center at Arizona State University. "They are quasi-pro and amateur investors driven by the idea of self-sufficiency: This is their way to become financially independent. It's a move taken straight from the old day traders of the stock market."

Comparisons to the stock market bubble of the late 1990s imply that this is a party that will be over soon. At least that's what analysts, experts, and magazines like this one have been saying for two years now (see "Is the Housing Boom Over?" on fortune.com). Except it hasn't turned out that way. At least not yet. The Commerce Department just announced that new-home sales in March soared 12.2%, setting a new record. Now it looks as if 2005 might be another record year.

What the hell is going on out there?

Riding-the-Boom10To answer that question, FORTUNE toured model homes and half-built developments, attended seminars, and stood in condo lines with dozens of real estate speculators (who would probably prefer to be called real estate investors) in Los Angeles, Las Vegas, Phoenix, Austin, and Miami. As a group, they tend to alight on a hot market, gorge themselves on property until prices skyrocket, then move on to yet another promising town. Many of them acknowledge that they are part of a bubble and that a correction is coming. But they believe it won't hit their market--or that if it does, they'll be able to get out in time. Despite all the warnings and a few bleats of self-doubt, most of these people are continuing to behave with all the stark raving urgency of panicked shoppers at an after-Christmas clearance sale.

To appreciate how intense the real estate craze has become, you could have done a lot worse than visit last month's Real Estate Wealth Expo in Los Angeles (slogan: "One Weekend Can Make You a Millionaire"). A 46,000-people, two-day lovefest at the Los Angeles Convention Center, it featured the advice of Donald Trump, bestselling author Robert Kiyosaki, motivational speaker Tony Robbins, and hip-hop impresario Russell Simmons. Imagine a late-night infomercial sprung bizarrely to life, with all the hucksters and viewers mingling in the same giant room, whipping one another into a get-rich-quick frenzy.

More than 100 kiosks filled the exhibit hall, selling everything from Miami condos to massages. Inside a phone-booth-like contraption called the Money Vault, attendees grasped wildly as gusts of air blew around a mass of fluttering fake dollar bills. At the end of one seminar on commercial real estate, a speaker named Scott Scheel offered the crowd the chance to buy a "training packet" of books and DVDs for the "discounted price" of $1,620.50. A mass of people surged toward the cashiers, credit cards at the ready.

It is fitting that this hoopla took place in Los Angeles, since it was California that gave birth to the modern real estate speculator. In 1997 the average price of a California home was $186,490. Today it's $495,400. A market experiencing that kind of rapid appreciation is the perfect breeding ground for speculation, and an impressive run of it is exactly what California got. In Los Angeles between May 2003 and May 2004, for example, the number of homes sold that had been owned for less than six months jumped 47%.

As prices ballooned, however, speculating on California real estate became more expensive. It also became harder, because developers began inserting what are known as antispeculation clauses into their sales contracts. The clauses require proof that new homes are being sold only to genuine, we-want-to-live-in-this-house buyers, and they include a litany of penalties if the home is resold within a year.

But it wasn't very appealing to just cash out of real estate altogether. That's because individuals can defer taxes on the sale of an investment property if they make another purchase of equal or greater value within six months. That provided a powerful incentive for speculators to invest real estate gains in yet more real estate--but not in the Golden State. If California was no longer a good option, where else was there?

Las Vegas: Leverage 101

Riding-the-Boom5AT THE INVESTING Get-Together at the Durango Hills Golf Club in Las Vegas, Debbie Smith, a thirtysomething blond, is grappling with one of the many dilemmas facing the modern real estate speculator: remembering exactly how many houses you have. "We have four, five, six, seven, eight--wait, let me think," Debbie is saying.

She begins counting homes on her fingers, ticking off the names of developments. "Palmilla, Terracina, Cliff Shadows--" Mid-count, her husband, Jason Jones, with whom she hosts the monthly Get-Togethers, comes over to help. "There's the Mount Charleston cabin," he says. "And Mar-a-Lago," she adds. "So what is that? Twelve properties? I'm trying to think if there are any more..."  Debbie takes out a business card and begins writing down the names of the communities--in Las Vegas mostly, but also in Boise and Albuquerque--on the back. She gets 12 again. And pauses.

"Oh! We have Solana," she says, suddenly brightening, as if a dam has burst. Her heavily mascaraed eyelashes flutter. "That just closed this week. Oh! And I have one in Mississippi too. I forgot about that. Fourteen." (Actually the couple have 20 properties; they're forgetting a block of apartments they picked up last winter.)

It should come as no surprise that Debbie and Jason, a former teacher and financial advisor, respectively, are from California. Though they didn't have a stake in the California home-price bonanza, it definitely got their attention. Starting in 2002, they applied lessons they learned from well-known real estate guru Robert Allen and bought--online--five Florida houses that were in pre-foreclosure, putting just $1,000 down on each. They lost some money when the rents didn't cover the holding costs; then they watched the values leap. They were hooked.

By the summer of 2003 they had moved to Las Vegas, a market that was just beginning to show signs of life. In 2004, prices there rose 49%, and the speculators were swarming. Debbie and Jason began snapping up properties, putting anywhere between 5% and 20% down. They bought seven of them by draining their remaining $140,000 in savings, they say.

The rest they bought by taking maximum advantage of a speculator's favorite tool: leverage. Though they were out of cash, they managed to keep buying by borrowing some $400,000 in down-payment money from friends, family, and local lenders. Most of the properties carry adjustable-rate mortgages that are fixed at favorable rates for the next three to five years; the rents they earn from those properties just about equal their total monthly mortgage payments.

Today the couple estimate that the 20 properties they own are worth about $8 million. If that's true--and until they sell, no one really knows--their total equity has grown to about $4 million. That amount, the couple say, represents their entire net worth. But that fact doesn't seem to trouble them much. They plan to sell properties when they need the cash and hold on to the others to fund their retirement. "It's a risk," concedes Debbie, "but I really feel like it's a lot less risky than the stock market. Even if it does crash, it's not like it's worth nothing--like a stock, where the value can go all the way to zero. I guess it's much more exciting than it is scary."

As the networking part of the Investing Get-Together winds down, a short man in an aloha shirt comes over to the couple to introduce himself. His name is Kelvin Nakasone. He has an announcement to make: He has just bought a new house with the help of his real estate--investing mentor.

His what? It turns out that Nakasone, 40, a high school sign-language teacher who invests with his sister, an accountant, is a member of Russ Whitney's mentor program. Whitney is one of hundreds of real estate counselors currently making the rounds on late-night infomercials and at local real estate gatherings around the country. Whitney's program supplied Nakasone with a "mentor" who gave him a weeklong crash course in real estate; "extra coaching" in the form of a weekly followup phone call; and multiple training seminars in places like Cape Coral, Fla. For that, Nakasone paid more than $35,000. ("Sheesh," Debbie says later. "Some of those programs are really good. But his sounds like it was a little expensive.")

Nakasone started with the program in October and bought a house in Las Vegas in December. How much did he pay for it? "I can't remember," he says cheerfully. Is he worried about talk of a bubble? "Well, I can foresee what will happen," he says. "I know in the near future a lot of people who have interest-only mortgages will get in trouble."

He's probably right. Interest-only mortgages--which don't pay down principal, so borrowers make lower payments than with conventional mortgages and thus can afford more expensive houses--used to be considered risky. In 2001 just 1.6% of all new U.S. mortgages were interest-only. But last year a stunning 31% were. If there's any sign that a downturn could get loads of folks in trouble, that's it.

So what kind of mortgage does Nakasone have? "Interest-only," he says. "I didn't put any money down. But for investors, it makes sense. We get lower monthly payments. In my case, I'll be selling it for a profit, so I don't care about the interest-only. See, I'm from Hawaii? Property values there went through the roof. I saw the same things happening here, and I just know what is going to happen." His sister, who handles the money side of things, told him that the property has already appreciated $50,000. "I'm just waiting for the back end," he says.

Phoenix: Working the system

Riding-the-Boom6TRISH DON FRANCESCO, a 55-year-old in a scarlet Asian-style shirt, is peering over her red spectacles at a map of Phoenix's ever-expanding suburbs. Don Francesco runs Metropolitan, a real-estate-portfolio management company in the city, where business has been brisk lately. A board nearby lists names of recent buyers; some have bought more than 20 properties in the last week. It has been a long time since she took a day off. "Honey," she says, "I never take a vacation during a boom."

Just as the Las Vegas market was starting to sag last year, the Phoenix housing market was heating up. Having heard stories of what happened when the speculating boom hit Vegas, local real estate offices like Metropolitan began contacting California investors directly. Don Francesco sent out "millions" of direct-marketing faxes all over the state. She estimates that more than 700 California investors have visited her office in the last 18 months. More than half of them have purchased property. "We pick them up at the airport and drop them off," she says. "Why rent a car? Sometimes they're here maybe six hours total. Even then, a lot of them don't need to see the houses. They get here, look at the prices, and say, 'Two hundred and fifty grand? I'll take two of 'em!' "

In the past year the number of Phoenix homebuyers who identified themselves as investors has more than doubled, to 2,703. They bought 18% of all homes sold in the Phoenix area in 2004, according to Infocom, a local real estate research company. Phoenix builders, fearing that the speculative frenzy would damage their primary business, soon announced the same kind of antispeculation clauses that had proved largely successful in both California and Las Vegas.

By the time those measures were in place in Phoenix last fall, however, the swarm of investors descending on the city was almost too much to stop. At one of the construction sites of big builder Toll Brothers, a van full of investors from Las Vegas pulled up to a sales trailer shortly after the antispeculation measures had gone into effect. According to a Toll Brothers spokesperson, the saleswoman on call was so flustered by the group's displeasure at being denied an opportunity to invest in such a scalding market that she had to radio headquarters for backup. "They all wanted to buy multiple properties, and they wouldn't take no for an answer," says the spokesperson. "They were trying to climb in and give her their deposits. She had to lock herself in the trailer."

Today builders in Phoenix will tell you that the new antispeculation clauses in their contracts have solved the problem. However, the example of Zareh Tahmassebian--he of the multiple houses and the knee that can drive--tells a different story. He bought several of his houses in Phoenix after the rules were in effect. How did Tahmassebian manage to circumvent them? It was, to hear him tell it, relatively easy: Sales reps for some builders, including KB Home, gave him a call every time a development was in danger of not selling out. "I didn't even care where it was," Tahmassebian says. "You have to be ready to jump." (When told of this breach, KB Home spokesman Derrick Hall is philosophical. "Is it a perfect system?" he says. "No, it's not. It's a deterrent.")

On several occasions Tahmassebian has even found himself at the grand opening of a community--an event typically reserved for "end users," as the builders like to refer to people who actually plan to take up residence. The openings are sales events where hopeful buyers are invited to gather with their families for a lottery in which the lucky new homeowners are selected. In oversubscribed communities the lotteries can get tense. Elsewhere, they take on the quality of a new-community pep rally. When a winner is chosen, the lucky family's name goes up on the board. They get a button. Someone takes a picture. Everyone applauds.

To keep up appearances, builders will often insist that Tahmassebian attend, even though they know he's an investor. When they do, he gets on a plane to Phoenix, hops in his standard 300M, and floors it to the sales office. "It's a little uncomfortable sometimes," he says. "I'm out there by myself eating eggs Benedict with all these families. Every time they announce a name, there's a bunch of clappers and noisemakers going off while I'm out there pacing."

Since last year, when the Las Vegas market began to cool off, Tahmassebian has made more than 20 trips to Phoenix to scout, buy, and inspect houses. He is obviously a quick study. At age 17 he learned about leverage from his cousin, who mapped out the principles on a napkin in a diner. ("You can buy one $200,000 house with cash, or you can buy 20 with 10% down. Which would you rather have?") At age 18 he bought his first home for $126,000, watched it appreciate, and decided not to go to college. (He sold 2½ years later for $369,000.)

Tahmassebian bought his eight Phoenix houses with 10% down, a total investment of $150,000 including closing costs. To buy seven more houses, he entered into a limited partnership with his best friend's dad, who lost money in the tech crash and is looking to make it back in the housing market. Each contributed half the down payments.

The houses aren't exactly throwing off cash: Tahmassebian estimates that he loses $3,500 a month on them, since he doesn't bother to rent out all 15. "If I'm negative on a few, that's okay," he says. "I'm in it for the appreciation." In seven months, he estimates, the 15 properties have appreciated from $2 million to $3 million. He's planning to sell in the next two to three years, but if the market does crash--which he doesn't expect--it wouldn't be a disaster, he says: "You just hold on till it comes right back up."

Austin: The nomads

Riding-the-BoomCERCHEERCK. I AM sitting in the back seat of a Ford Excursion with Stephen and Crystal Wong, the second of a two-car real-estate-speculation convoy that is cruising through Austin. Cercheerck. The voice of Tom Polk, the broker leading the tour from his black BMW, comes over a walkie-talkie. "Now, you know, there's something important that separates Dallas and San Antonio from Austin," he says, his voice crackling. "It's a little thing called quality of life."

Polk is laying on the hard sell because the Wongs are currently in the middle of a three-day, three-city tour of Texas--San Antonio yesterday, Austin today, Dallas tomorrow--during which they plan on picking up 15 houses. Though their permanent residence is in San Francisco, the Wongs, who run a Home Instead Senior Care franchise, have already purchased 12 houses in Phoenix over the past 18 months. In that time, they say, those properties have appreciated 47%, to $2.4 million.

Now the Wongs are starting to sell a few of their single-family homes in Phoenix and roll that money into the next market that looks primed for serious growth. Outside of Florida, there is no obvious successor, which for many has meant that now is the time for a longer-term growth play. Though most of the largest Texas cities have experienced stagnant housing markets in the past several years, many speculators have the state on their radar. The numbers are beginning to reflect that: Single-family-home sales volume in Austin jumped 38% in March over the year before.

The Wongs seem to have arrived with their minds made up. "Dude, this place is a total steal," says Stephen, 35. "It's like a penny stock!" He is wearing mint-colored slacks and a slate herringbone jacket with a yellow-and-blue-striped button-down shirt. A pair of dark sunglasses hangs from his collar. As Tom the Broker recites local landmarks ("And there is the bar where Jenna Bush got busted for underage drinking ..."), Stephen explains his thinking. "I definitely don't feel like America is going to be like this forever," he says, looking out at the newly developed houses that dot the Texas hillsides. "You need to stake your claim now. It's like the Wild West again. Actually, I'm kind of shaking right now. I feel like a Coronado or a Cortéz."

Behind the wheel of the Excursion, 25-year-old Crystal--in a cream suit, pink shirt, pink heels, and matching pink watchband--is so eager to move the tour along that she floors it past the black BMW until Tom radios over a request that she get back in formation. "Come on, Tom," she practically shouts when the radio is safely off. "I want to buy!"

If the Wongs and their broker are not on exactly the same page, it may be because they have never met before. As the urge to invest in properties far from one's hometown has surged, companies have sprung up that help put buyers in touch with hot markets. The firm that matched the Wongs and Tom Polk is the ICG Group, a full-service property-management company with offices in San Francisco and Tel Aviv. Though Polk also gets many out-of-state investors independently through the Internet, his connection with ICG has changed his business. "I used to get about 20% of my business from investors," he says. "Now it's 80% investors and 20% homebuyers."

As the convoy comes to a stop at the last of six largely indistinguishable developments on the tour, the other potential buyers on the trip, Scott and Lynda Hibner, emerge from Tom's BMW. The Hibners, who live in Phoenix, have invested only in Las Vegas so far. Scott sees the property-value tidal wave moving east, so the Hibners are planning a "relo" to the Austin area. "It's been moving from California to Nevada to Arizona," he says. "It's coming this way. Or it seems to be. We're hoping to find another Vegas, but I don't think it will happen."

With everyone in one place, surrounded by houses in various states of completion, I ask them if they're worried that they might be caught up in a bubble."No, no--see, bubbles are for really high-priced areas," Tom says. "It can't get much lower than here. In Texas the sky's the limit."  "Ah, that's all guesswork and theory anyway," says Scott. "Nobody really knows." "It's certainly not here yet," Stephen says. "Anyway," Tom says, "that would be like your stockbroker telling you, 'Don't buy Dell, don't buy Whole Foods.' Sure, the price is high--but it's still going up." "Yep," says Scott. "They said that in California five years ago, and look what happened."

Satisfied, they let the talk wander to other subjects. The Hibners are planning to look for an existing home they could move into in a nicer area. Stephen and Crystal have decided to buy in all the areas where Tom the Broker has invested in property. ("I'm going to be piggybacking on everything you did," Stephen says to Tom. "I'll call you on Monday. I'm not trying to--you know the market. I like what you like.") As we get back in the cars and part ways, another group of customers pulls into the development's sales center behind us.

Back in the Excursion, however, Stephen keeps the subject of the bubble alive. "I love all the talk of the bubble," he says. "It eliminates all the chickens. Then I can buy cheap when the bubble does burst. But it's important to stay ahead of it. That's why I'm liquidating in Phoenix to start buying in Texas. You gotta keep the money moving."

Miami: End of the line

AT THE LAKEVIEW CLUB in Oakland Park, Fla., a former apartment complex near Fort Lauderdale that's about to go condo, the line of wannabe buyers is some 40 strong. It is 10 A.M., and the first buyer arrived at 3 A.M. to stake out a spot. By 11 A.M., when the sales begin, the crowd outside the complex--which consists of 443 peach stucco units clustered around a rehabilitated swamp, with prices averaging about $200,000--is getting antsy. "Each year that I haven't bought something, I've always said to myself, 'Gee, I should have done it,'" says Darrell, a mid-30s hospital administrator in a faded blue T-shirt, shorts, and a buzz haircut, who is there to buy his first investment property. "It's the only place to put your money now to be sure of getting a good return."

Several others in the line nod in agreement. "Oh, yeah, that's what my uncle says," offers Cecilia Martinez, a 42-year-old billing agent dressed largely in pastels, one of the few in line actually looking for a place to live. "He says take money out of your IRA and put it in real estate." (She hasn't yet.)  "I've had retirement accounts since 2000, and I've watched them dwindle to almost nothing," chimes in Randy Leonard, 46, an oncology nurse. "Had I had it in real estate, I'd be sitting pretty."

Indeed. Since March 2004, home prices in Fort Lauderdale have jumped 31%, Port St. Lucie 39%, Cape Coral 43%. In Miami, the euphoria has reached, in many cases, truly over-the-top proportions. Consider a party thrown last month by Fortune International (no relation to this magazine), one of the largest developers in town, for a soon-to-be-constructed condo called the Ivy. White stretch Hummers carried guests between three party locations as bikini-clad models decorated with real-estate-themed body paint paraded amid massage tables and lychee martinis. Brokers and investors mingled with choice buyers and hotshot international clients.

The party was well attended, because getting in early on a Florida condo at pre-construction is the new version of scoring a spot in an Internet IPO. But while connected insiders usually get the choicest deals, most developers also host a public sale in which they release the remaining units to the masses. Those masses, many of whom are newbie investors, are piling in--in what feels like a last desperate attempt to get rich. The result is a sight that has become as much a part of Florida scenery as the palm tree: the condo line.

Because projects can sell out in a matter of hours, buyers will do nearly anything to assure themselves a piece of the action. They camp out for days in lawn chairs and beneath umbrellas in the hot sun. They bring coolers of food and drink. They bicker over who is ahead of whom. "Riots break out from time to time if the right security is not in place," says Kim Kirschner, head of Kirschner Realty in Hollywood, Fla.

Back at the Oakland Park condo sale, a team of 30 or so Kirschner employees wearing royal-blue shirts and black pants are scurrying around shuffling buyers through "model units" and into the "map room," where they pick remaining units from a giant aerial view of the development. As the day goes by and more condos sell, the Kirschner brain trust gathers behind closed doors to gradually raise prices for the remaining units; one unit is rumored to be up $10,000 by early afternoon. As the development fills and word of further price increases spreads, the pressure mounts for buyers toward the back of the line.

"It's like any game. It's the guys who get in early and in the middle that make money," says John (he declines to give his last name), a chiropractor who is on hand with his girlfriend, a nurse in a white tank top and hot-pink lipstick who's also in the market. He has bought three other investment condos in the area already this year. "It's the guys at the end who are left holding the bag."

Riding-the-Boom11IT'S IMPOSSIBLE TO TELL how far a mania will go before it turns. But even some diehard speculators, like Jason Mitchell, are starting to get nervous. Before graduating from Syracuse Law School in 2003, Mitchell, 31, flipped two houses in Las Vegas in one month each. "It was a gold rush," he says. "Everyone was flipping houses as fast as they could. You would go to dinner, and the waitress had just moved from L.A. and flipped two houses in her first week." In total, Mitchell and his wife, Connie, bought seven investment properties in Las Vegas. Today, however, they have sold all but two. "I had almost like a eureka moment," he says. "It just hit me that I was seeing the same group of other investors at every development site. They were buying six to seven houses each. They were buying in other people's names. I thought, 'My God, the bottom is about to fall out of this thing.' So I stopped."

Further east, in Phoenix, sisters Cheryl and Carolyn Lawyer, 45 and 34, are also feeling a little wary. They both quit their jobs last year (as a marketing consultant and a manager at a semiconductor company, respectively) to rehab houses together. Now they often get calls from friends just getting in the game. "We're worried everyone's in denial," says Carolyn. "There are a lot of people getting in at the top of the market, and you could hear some horror stories if it doesn't last."

Then there's Eric, 39, a Wall Street banker who also declines to give his last name. He recently put a $25,000 deposit down on a $650,000 condo in Miami that he heard about from a broker friend at the Maley Group, who had recently helped him buy another condo in New York for $1.25 million. The Miami waterfront building has yet to be constructed, so he's watching and waiting from the safety of his Manhattan office. "I read all the stories about real estate and condos in Miami," he says. "You know, saying, 'Everyone is a speculator,' and 'It's a herd mentality.' I see them all the time now, and I wonder: Am I one of those people?"

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