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Time for the investor?

Marv Needles

There have been some great times for a real estate investment; and there have been some that were less than exciting (the past few years). However, the time to buy may be now. Read on and you may thank the publishers for allowing me to write this column. The following does not reflect the opinion of the Coastal Breeze News. (If I don’t say that, they’ll put it in anyway.)

If I had a million dollars sitting in my cookie jar, I would buy real estate now. The real estate market, like the stock market, offers some great investments and some bad investments. The key is to know the marketplace. Up until the 1980’s the catchphrase for investing in real estate was “location, location, location.” In the early 1980’s, due to one of the worst real estate markets, due to high interest rates (18% to 20%), the catchphrase was modified to better express the mood of investors: “location and timing, location and timing, location and timing.”

Today, there seem to be several signs of an improving economy. If you don’t believe me, check out the newspapers and the nightly news. If it’s found there, it must be the gospel. Reports indicate consumer spending is up, people who moved from buying in upscale stores and switched to the Wal-Marts and the “dollar” stores of the world are now returning to their previous grazing pastures. Further, sales of high priced products, auto, appliances, TV’s and other goods are on the rise. The only doubt lies in the employment (or unemployment) numbers; and the bottom seems to be close at hand. All that said and assuming relative accuracy, with the significant positive reflection of the stock market, real estate should be next in line.

Back to my million dollars. In today’s real estate market there are some absolutely great opportunities and I would take my million and buy. As previously stated, timing must be considered. It is my opinion that all property will appreciate in time; but the time and the property must be coordinated. While one property may appear to be a great buy, the rate of return may not be as good due to the time it may take to realize the return. “What’s he talking about?” I heard some whisper. You’ll discover my meaning later.

There are two basic types of real estate investors: one has the desire to make a quick buck; and the other is in it for the long haul. For an investor who wants the quick buck, he (or she) wants to be able to flip yesterday; or he or she may want to wait a little longer to benefit from long term capital gains. For this type of investor, one must look to the inventory of a specific neighborhood, the type of property (maybe commercial) and the absorption rate (how fast properties are selling).

Let’s take a look at a specific market. In the last several months, lower priced houses have been sailing out the door, but the higher-end product isn’t getting much attention. That said, if an investor wants to buy a house, fix it up, and put it back on the market (flip it), the investor has a better chance of a quick return by working in the lower end market. The “lower-end” market will vary from community to community. While there may seem to be a greater return in the higher end property, every day of the “holding period” lessens the profit; and waiting for the high-end market to return may negate any profit anticipated.

Now let’s assume that the market is on a rebound. After the past cycles, the higher end properties made the first move upward. Ironically this cycle seems to be just the opposite; the lower priced properties are selling and others are slow to respond. However, if all indications are correct, the affluent will be returning to the market and buying what they want because of the property, not because of the price. People don’t buy a new Cadillac, Lexus, Porsche, or Bentley because of the price. They buy one because they want it.

Our contacts (the affluent ones) tell us that they are simply in a waiting pattern. “I wonder what they’re waiting for,” you ask, “since it’s such a good time to buy?” These folks want assurance; and assurance that the economy is really on the rebound. It is my personal opinion that, considering all other issues, time is the dominating factor; and if the positive signs continue for another six to eight months, we could be witnessing a return of the higher-end buyer in early 2011.

Historically, once the high-end begins a move upward, middle priced properties soon follow and  appreciation begins; and then it becomes a factor of basic economics, supply and demand.

“I’m not a high-ender, but I’m looking for a good investment, what would you suggest?” you ask.

Back to my million dollars. It is my belief that residential waterfront property will experience the greatest return over the next few years. That includes vacant homesites and low-end waterfront houses. Keep in mind that due to a variety of factors, the development of waterfront homesites is over for coastal Florida.

They each have their unique advantages. The house (it must be habitable) can be used as a vacation home or rented. If it’s a home that is in much need of repairs and it’s a “tear-down” candidate, move on. If it’s rentable, the rents won’t offset the taxes, insurances and maintenance, let alone the debt service.

Consider the vacant waterfront homesite. That’s where my money would go. Now, I suggest that you don’t go out and take “your” million and buy just any waterfront lot. There are some that have advantages over others. Only an experienced real estate professional can explain the advantages of each based upon “location, location location.”

Marv Needles is the broker/owner of ERA Flagship Real Estate which he founded in 1973. He has been a full time resident of Marco Island for over 40 years.


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