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Author: Chris Anderson, PhD Article source: http://www.onlycredit.us/. Used with author's permission.
Do you want to see something that is absolutely amazing? Let me show you what has happened in Destin, Florida over the last 3 years. Back in August of 2002, the median price of a home selling in Destin was $229,000. One year later, August 2003, the median price in Destin increased to $305,000, or a 33% price increase.
Roll the clock forward in July 2005, and we see that the average price is now $658,000 as you can see in the price charts below. Do you think there was a little money made in Destin over the last few years? Since I live in the area, I can attest to the HUGE role real estate has played in our local economy and large amount of wealth that has been produced.
For the Monday morning arm chair quarterbacks of the world, you can just hear them at a dinner party saying…. "Boy, I knew that real estate was going up around there and I came close to buying a piece of property back in …….". "If I WOULD OF have purchased that property, I COULD HAVE made a killing…. I guess I SHOULD HAVE bought it before prices went so high. This is what investors call the Woulda, Coulda, Shoulda syndrome.
The WORST thing an investor could do right now is to realize that they missed some gain potential in Destin and then assume that prices will just keep going to the moon. Rather than kicking themselves for actions taken in the past, what this investor should be doing is trying to understand what has happened in the past and then apply that knowledge to FUTURE investments. Let' rewind the clock and see what happened to see if it sheds any clues as to what we should be looking for in the future.
Twenty years ago, Destin was a sleepy little fishing village that calls itself the "Worlds Luckiest Fishing Village". In addition to sugar white beaches, the area has great fishing and emerald colored waters that actually rival some spots in the Caribbean for water clarity. But twenty years ago, very few people wanted to live in Destin and only a small number of tourists wanted to visit the area. Boy has that changed.
In 1993, there was a major event that, in many people's opinion, changed the course of Destin forever. This was the opening of a major bridge into Destin that now provided easy access to tourists. Today, only 12 years after that event, Destin is a huge international tourist destination with multi-million dollar beach condos, Lear jets depositing visitors for the weekend, and a wide array of dining and shopping that rivals many upscale areas. Not too bad for a bunch of people that were affectionately called "fishheads".
So looking back, how could the individual investor have made smart moves in Destin?. Suppose you put on your investor hat and you came down to visit in 1993 right after the mid-bay bridge was constructed. You would have seen:
* A great beach and fishing location;
* An expanding offering of hotels and condos;
* Have realized that it was very unlikely for this area to drop in price due to the ever increasing demand for waterfront and nice vacation spots.
At that stage, somebody with a little bit of foresight could have made a longer term investment and planned on holding for 10 years. This longer term approach might not be your style, however.
Fortunately, you really did not have to really be that smart. Supposed you decided that Destin was likely to be an EMERGING area but you just didn't know when. You would have seen both price and volume of sales start to shoot up in the middle of 2002. When this BUY signal occurred, you would have found that you could have purchased many types of properties that would easily rent out and cover your expenses; i.e., there was a safety net for you. At that point in time, it was absolutely obvious to EVERYONE here that Destin was a major tourist destination that was not going to go away anytime soon.
As time went on, you would have seen the price and volume of sales continue. Looking at the figure below, you would have seen the year-to-year % change in price and the year-to-year % change in volume continue skyward until around December, 2004. After this time, the prices kept going up but not as aggressively. Also, you can see that the rate of change of volume has been dropping over the last 6 months which is a sign that things are definitely cooling off in this local market.
To me, that chart speaks volumes. It says there was a great opportunity to get in and there has been plenty of time to get out. However, it also tells me that I probably don't want to invest in Destin right now even though in the longer term, I think Destin will do just fine. For my taste, I would rather find the next EMERGING market rather than one that has already EMERGED. Dr. Chris Anderson is a co-founder of http://www.GetPreconstructionDeals.com and is referenced in many venues including the New York Times and USA Today. Download his free, 30+ page preconstruction investing ebook today at Get Preconstruction e-Book.
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