Zareh Tahmassebian

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REAL ESTATE FRENZY Riding the Boom 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

FORTUNE May 30, 2005

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.

Tahmassebian, 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

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.


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 2 1/2 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."

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