Would you ever purchase stock in a company that you have never researched? Have you ever considered traveling to another part of the country and writing a major check to someone you just met two days earlier?
In the early and mid 2000s when the world’s real estate market was sizzling, it was not uncommon for good, hardworking couples and individuals to visit Plantations/Communities in the South or West and purchase homes, homesites and condos after a brief tour of the area and community. Folks were dropping in excess of $400,000 on 1/3 acre homesites and these developers merely had to produce some impressive Marketing materials, hire a solid sales team, rent a big tent, provide boat and helicopter rides and fill everyone’s tummies with good vittles.
Today, many of these developers have filed bankruptcy and or fallen on hard times and are clawing just to stay alive. The harsh reality to so many is that big billboards, fancy gated entrances, freshly plowed streets and promises of eternal happiness were just that, promises. And to be fair, most developers were and still are honest people but, they never were prepared for the ensuing economic downfall of our great country.
The perhaps shortsightedness of those who plunged into the real estate market should be a lesson to those that either decided to ride out the upsurge or who were not ready at the time. What is factual now though is that taking risks on real estate purchases are pretty much in our rear view mirrors. Or at least they should be. All one needs to do is to drive through the empty or struggling Plantations and Communities throughout the country for a sobering reminder of an era gone bad.
So, if you are about to embark on a journey to find an area to retire to or even purchase a second home, what steps can you take to insure that your developer is financially sound?
v The Internet – this tool can provide you with information that was never possible before. Google the name of the develop and read as much as you can on what people are saying – both good and bad.
v Financials – if the company is public, ask for their recent financials. If they are not public, chances are good that they will not release information but, if they have nothing to hide, than they should be willing to provide you with more than just promises of stability
v Residents – often an overlooked resource but certainly one that is viable. Many of the residents of a development not only have done their own research, but many have a history with the developer.
v Creditors – one of the largest expenses to developing is the installation of the infrastructure. Ask what company did the paving or built the sales office or amenity center. Call these firms and ask them if the developer is or was delinquent with payments
To increase the enjoyment of your hard earned retirement, one should look for a developer with a long track record of fulfilling promises. However, even this alone has proven to be insufficient research as numerous previously successful developers have filed Chapter 11. So, when it is time to begin your search, be prepared to thoroughly research each developer you are considering. If you were going to purchase $300,000 of one company’s stock, would you do it just because they have a recognizable brand name or, because their P/E is strong, their portfolio is stable and their debt is almost zilch?