Riskiest Real Estate Bet in 2012

By Kevin Chiu

Vacation destination housing markets like Honolulu, posh Hilton Head, South Carolina or beautiful Miami Beach have challenges resort market of their own, and they may be the real estate industry’s riskiest bet in 2012. Each hold traditional housing markets with year-round residents, but the condominium and vacation homes that are sought by vacationers and make up their resort markets are a whole other brand of real estate.

Vacation homeowners often depend on rents to pay at least part of their mortgages, condominium association fees, taxes, insurances and other expenses. Prices in Miami have dropped so much – as much as 80% for some well placed condo units from the markets peak — that many homes and condos appear to be bargains.

Massive housing deflation has convinced buyers to take advantage of the marketplace for good reason, betting that prices will rebound. In Miami condos and homes are already inflating in value, but that doesn’t necessarily mean that prices will continue to rise as strongly as they currently are given the hard hit state of the U.S. economy and high unemployment in the region.

Long term investments are historically the best way or most dependable way to invest in any sort of property. When it comes to investing in real estate in the current economy it might be best to plan on waiting a number of years for any sort of sizeable return on your investment. The days of flipping condos to make a quick profit are long over.

resort markets

High unemployment troubles the most attractive resort markets in the U.S. When the housing bubble burst it sent millions of construction workers, tradesmen, bankers, mortgage brokers, real estate agents and title company employees to the unemployment lines. But many are not even reflected in unemployment figures.

Those same workers supported the local economies of the resort markets they served on a full-time basis, but the majority is now relocated, leaving many vacation markets without the population of full-time residents to support local communities and pay property taxes that support other services, including police and fire protection.

Condominium association fees have tripled and gone up as much as six times in some developments, making what at first looked like a bargain basement purchase a scary proposition.

Resort real estate inflated at the highest level in the industry during the housing boom. Vacation destinations rose at double-digit figures annually, only to collapse with some of the hardest hit deflation. Record foreclosures are pressuring property values and are projected to damage most resort prices in 2012.

There are exceptions like Miami, and there may be additional markets that prove worthwhile in the near term. Miami’s resort market is demonstrating strong appreciation as foreign buyers from South America, Brazil and Europe pay cash for more than half of all home purchases.

Miami had a record breaking streak of new construction. Unfinished condo developments are scattered throughout the tourist areas of Miami, which is likely to take years to reach the most important mark in real estate – stabilization. But planning for the long run, however, may even protect a real estate bet in the riskiest of markets.