I am either being asked or told pretty regularly these days about the local, regional or national real estate markets, and I thought I would post some of my observations and our development philosophy as it relates to the market. Before going any further though, I don't claim to be clairvoyant, I don't claim to be an expert, and I don't really have any idea what trends the national real estate markets will follow, but I do at least have an opinion on what is happening with our product in our market.
When we first started envisioning TidalWalk (about 18 months ago), we were right in the middle of a very hot local and national market. But, knowing how markets can change, and seeing some exuberance, we chose to create a devlopment that was geared toward home buyers and lot buyers instead of towards quick-turn investors and speculators. Our homes and lots; and just as importantly, the marketing of our homes and lots are focused on the buyers who would want to use them for the long term. The trend around the country has been to market to investors and speculators, but given our extremely good location, our local economic and population trends, and our overall community offering; we felt completely comfortable letting the investors find us, rathering than going after them, and focusing our design, marketing, amenity and lifestyle efforts on creating a unique development we think people will want to truly "live" in.
So why do I tell you all of this? Well, in my opinion, there are plenty opportunities to be extremely successful with residential real estate developments and investments going forward, so long as you follow a few basic principles. We use these principles as a guiding factor in where we invest, where we look for land, and where we want to be over the next decade.
The Principles
First of all, new development or investment is best done in areas that have exceptionally strong economies. When I say strong economies, I don't mean strong real estate markets; I mean that the underlying economy in the town or city is growing well above the national averages. Job creation is strong, unemployment is low, incomes are rising. In this type of environment, you should find an above average growth rate in the population - which means people are moving to the area to work and they need places to live. People are also upgrading their current housing situation, and overall, there is a need for housing and a good velocity to the housing market among primary buyers. This principle holds true no matter what the current real estate market situation is.
The second principle for good investment and development is to be in areas where there is a strong market for second homes or vacation homes, on top of the already strong local market for primary homes. Baby boomers have not lost their desire to retire and have a home at the beach or in the mountains. I separate this from the strong economy criteria because these buyers do not count in the statistics for population increase in an area. These buyers, like the primary residence buyers, are buying for the long term.
The third principle is to stop and make sure you really do have both one and two happening where you are considering investment or purchase. It is easy to convice yourself both conditions are present. The red hot markets have tended toward vacation products in vacation-only markets. It is easy to mistake these markets for good economies, but in reality, their economy has been disproportinately based on the real estate market. One element we look for when looking at a new market is how much vacant land is still available in the greater area. We would rather pay a premium for land in strong economic markets with a vacation/second-home market - if there is little left to be developed than to buy land extremely cheap in over-supplied areas and have to create demand ourselves.
Finally, be extremely careful of the temptation to make short-term profits. Condo projects, promises of quick flips, etc. may be tempting, but there is a massive supply of product on the market, and the buyers you would need to flip to are few and far between. Land (Dirt) in good locations with strong local economies has always, always been one of the most resilient and profitable investments. If you prefer buying a constructed product, look for relative value. That does not mean the cheapest house, it means that the value of the product you are buying is better than it is somewhere else. This leaves a lot up to opinion, but consider the community, the amenities, the price and what else is available in the area for a similar price before making a decision.
Hopefully this at least gives you an idea of our philosophy of the markets and what we look for. I think it also hints strongly as to what we like to create in our developments. When you look around your town, there are established neighborhoods that always seem to be in demand, and investment in these neighborhood always seem to pay off. That's what we are tyring to create, and that is where we like to invest. Please respond with any questions or comments you might have and I'll do my best to get back to you as soon as I can.
Tim Wilson
