Should You Invest In Gulf Shores Real Estate?I don't think that anybody should invest in Gulf Shores real estate. That doesn't mean that you shouldn't investigate buying a vacation or retirement home, nor does it mean that if you are relocating to the Alabama coast, you shouldn't weigh buying against renting. But investing? No. The coastal market has always been unstable, at least from the time people first started investing in it. In Florida that was during the "roaring twenties." The population of the state grew from 968,000 in 1920 to 1,263,549 in 1925. However, most of the actual buyers had no intention of living in the state. They were busy at home. In fact, they didn't even travel to the state to purchase the property. They sent representatives to make the deals with down payments. The representatives made good commissions, many became wealthy. Credit was easy during that time, and smart people borrowed more than they could pay back from their income. Florida real estate was going to rise far enough to pay the debt back and clear a comfortable profit real fast. Some of them got in, got out and counted their profits. But most investors put their profits right back into Florida real estate. Investors were pouring so much money into Florida that little towns became booming cities - Marco Island, Naples, Miami Beach, and Tampa to name a few. But there was trouble brewing in paradise. Escalating real estate values drove housing prices up farther than the working man, who was actually building the state, could afford. Less people came, more people left. The investors discovered that they had cleared more land and built more housing than there was (what we call now) end users. Then a series of bad weather events (an unusually cold summer in 1925, followed by an unusually hot summer and then some hurricanes) totally crashed real estate, pushing Florida into a depression four years earlier than the rest of the country. Well didn't that sound familiar? There have been several mini-bubbles on the Gulf Coast between the 1920's and the mid 2000's. When this one clears there will no doubt be another one sometime in the future. This one is so bad that I don't think another one will come for many years. What worries me is even though condos on the Alabama Gulf Coast are selling as much as 50% less than they were at the peak of the bubble, they could still fall farther, maybe a lot farther, looking for enough end users who actually can afford a condo. I think the number of buyers who are getting into the market even hoping to get a return on their money someday is very small. If I'm right the market is totally dependent on buyers who are affluent enough to invest a few hundred thousand dollars into a second home, and absorb the taxes, insurance and overhead (some of the newer condo complexes have association fees approaching $1,000 per month, $500 is common - the upper range of those fees are house payments somewhere else on a $200,000 home.) In the heady days of the boom none of that mattered because it was all going to be made up on the back end, maybe even before the condo was delivered at closing. Raffles and reservations for Gulf Shores real estate was the rule. It always helped to "know somebody." Another reason why I don't think that we've seen the worst of it is that there are still many investors struggling to hold on, unwilling to cut their losses. I was speaking to an investor the other day about someone in my family wishing he hadn't bought "those last two." He shook his head slowly and held up eight fingers (meaning that he owned eight that he had bought preconstruction). Over time more and more are going to have to let go of their Gulf Shores real estate whether they want to or not. One more reason to be worried is the current economy. We probably haven't hit bottom yet, and this recession is one that is strong enough to change behavior at least for awhile, maybe a decade or longer. I'm not so sure that when we recover from this recession that people are going to be as free with their money as they once were. Gulf Shores real estate will return to what it once was not that long ago - only for those who can truly afford a second home by paying for it from predictable savings and income. We've all heard about the baby boomers flocking to the coast. That might still be true to an extent, but they don't all have to gather directly on the coast. And all of those baby boomers never intended on making a condo their primary residence. (We moved into a Pelican Point condo in Orange Beach in 1995. The only people living there besides us was a single man, and we moved to a house after three months.) In essence, Gulf Shores real estate prices are going to keep dropping until supply meets demand. In early 2006, when it was obvious that the bubble was going to bust, we owned two preconstruction condos and one preconstruction villa. It's not a good feeling owning three properties totaling almost a million dollars that are undoubtedly going to be underwater at closing. Back to the original question: No, I don't think Gulf Shores real estate is a good place to invest, but if you have always wanted a second home on the beach and you can afford it, and if you don't think that you'd lose any sleep if the value of the property went down below what you paid for it for awhile, then it might make sense. If you are serious about buying Gulf Shores real estate look at properties until you are tired of looking at them, and then look some more. Don't compare apples to oranges. If a price looks to good to be true, look real deep. There is a reason why a condo is listing for less now (adjusted for inflation) that it was 15 years ago when it was built. Spend a lot of time on the property and strike up conversations with owners. Ask the seller's agent for condo documents and the bylaws of the homeowners' association. Check closely for any ongoing litigation and special assessments (assessments sometimes are regular regular events if you are considering a "problem property".) Attend an association meeting. Ask yourself if the people there appear happy. If most don't that could be how you will end up feeling. Consider buying Gulf Shores real estate off the beach, but still on water. Make sure it didn't flood during Ivan. That's especially true if you are looking for a home. Those "one hundred year floods" come pretty often nowadays. Consider renting, even if you are planing on staying months out of the year. If you are planning on coming during the off season every year, you can probably rent cheaper per day than the condo is costing the owner per day (figuring in the original cost). Gulf Shores is a great place. We love the beach. I love the fishing. It's a clean, pleasant place to live with some amazing amenities. If I lived off the beach, and I was wealthy enough I would probably buy some Gulf shores real estate. I would expect to be paid back with pleasant memories. The beach was better for everyone when most people bought for that reason. What's your opinion regarding Gulf Shores real estate? Is now a good time to buy real estate. A great time to buy a second home? Share your Gulf Shores real estate knowledge and opinions here.
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