Wednesday, June 6, 2012

Real Estate Market Conditions: Dr. Jekyll & Mr. Hyde

Have you ever seen such a crazy real estate market? Depending upon where you live, you may be saying this is the worst real estate market in 20 years or you may be saying let the good times roll. Talk about a real split personality situation.

Don't despair. No, the sky is not falling and actually what is going has been quite predictable by many. When you go to real estate markets that were hot 18 months ago, the savvy investors are laughing all the way to the bank since they got out before it went soft. These investors have absolutely no interest in buying in their local market unless someone makes them a deal that they just cannot refuse.

In other markets, you have savvy investors buying everything that makes sense. In fact, there are some markets out there RIGHT NOW where the real investors expect nothing but growth for 3-5 years. And this is coming from the mouths of very experienced (20+ year) investors who are actually putting their money in harms way. For the average Joe, how can you possibly sort out if you are dealing with a Dr. Jekyll or a Mr. Hyde when you are considering a new real estate purchase? Its simple. Look at the fundamentals.

This last week, I was in two resort markets; Cape San Blas, Florida and in Marble Falls, Texas. In this week's article, we are going to compare two example properties to show how working in this (or any) real estate market is quite simple if you follow the fundamentals.

Cape San Blas, Florida Have you ever heard of this awesome beach location? If not, you are in the majority because even in Destin, which is about 90 miles to the east, very few people know about its appeal. Over the Labor day weekend, we returned to this beach location that has been one of our personal favorites for over 20 years. The appeal of this location, at least to us, is that you can rent a beach house on some of the prettiest, but yet most desolate beaches that Florida has to offer. The first night we were there is pretty typical; as far as the eye could see down the beach, in either direction, and not a soul was to be found.

In fact, when you go on the Cape, you better be prepared to be self sufficient since the closest restaurants are 15+ miles away. Ever since we have been going to the area, there has been a moratorium on commercial development. Lots of beach houses (but not condos) dot the beach view so it makes for a nice get away.

Now, from the investment side. It used to be that the Cape was undervalued beachfront property. Even today, it is priced MUCH less than Destin beach front. Cape San Blas was a location where someone with reasonable resources could actually afford to own a beach front home and rent it out. Boy has that changed recently.

The house next to ours was listed for sale.AND SO WERE OVER THE PROPERTIES ON THE CAPE. It looked like a very nice beach home, 3200 square feet, 0.7 Acres, with a price tag of 1.99 Million Dollars. A friend of ours went with us and he and I have done a lot of investments together so we started doing the math. Without officially verifying the numbers, here is what we came up with on an annual basis.

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