What is the Cost of Risk?

Risk

Can you buy risk? No, not the old board game, but rather the intangible that has brought down mega conglomerates, countries and the one that has humbled millions of people. Does Walmart, Best Buy, Target, Niemen Marcus or Amazon carry it in their inventories? Chances are that if your retirement is on your horizon, you are going to be fairly risk aversive compared to the days of your youth, correct?

During the middle 2000s I was in real estate and experienced firsthand the almost total abandonment of the fear of the word risk. Good, hardworking, smart and diligent couples and individuals invaded our sleepy coastline and bought everything and anything they could. And I am talking anything here, as much of what was purchased was merely speculative in nature. (It was eerily similar to the 90s when people purchased tech stocks without doing any research on the firms they were invested in.)

Several of the larger plantations here and across the USA simply couldn’t cut down trees and put up four stakes fast enough due to the voracious appetite of the consumer. To many, there was MORE RISK at NOT purchasing a third of an acre dream homesite or 1,000’ condo than staying home and minding their own business. There were even lotteries where perhaps 100 homesites were released on any given weekend in 2006 yet, the sales and marketing machines brought in 150 Buyers to gobble them up. Many of those that lost out on the lottery went home in tears. Lucky them though, right?

Fast forward to 2013 and the market is coming back. Even a few of the abandoned communities where people sank a good portion of their savings into are beginning to be resuscitated. So the question now that has to be answered is have Americans learned their lesson? Are we a more risk aversive society today than half a decade ago?

In years past, American Pioneers were often rewarded for their vision and bravery and while that is still not out of the realm today, most folks have learned from the failures of the last wave of unlucky risk takers. Yet as you peruse the landscape of retirement type communities up and down the east coast, there is still plenty of risk out there.

So with regards to retirement and real estate, what are the risks that one must be aware of as you search from east to west and north to south?

INVENTORY
Relax, there is plenty of inventory today in most areas
Years back, the lack thereof is what really drove the market. That and good sales hype!!
Brunswick County probably has 10+ years of inventory of developed homesites
Many homeowners are waiting for the market to turn before they put their homes on the market – so while the home inventory is good, there are many to yet be listed
There are a few exceptions today, and those are the few communities that are offering not only a good product (as in amenities, activities, homes, etc.), but a significant reduction of risk

INFRASTRUCTURE

  • If it isn’t there, can you afford to be there? 
  • The cost of installing roads, which includes water and sewer lines, sidewalks, curbs, storm water drains and landscaping is very costly – not to mention the engineering site plans and permits
  • For example, in 2004 the approximate fully burdened (above costs plus sales & marketing expenses) cost to improve a homesite was $25,000. Today the cost is over $40,000. 
  • Community infrastructure also includes on site drainage ponds, community entrances, gate houses, easements and much more

AMENITIES

  • Once again, if it is promised but not yet built, can you afford to wait? And what happens if the sales team winds up being wrong? What is your real estate worth then? What happens to your retirement lifestyle? What if? What if? What if?…
  • If the amenities that are not yet built are important to your lifestyle when you retire, is there really no other community that can provide you comfort? Examples would be golf courses, indoor or outdoor pools, walking trails, fitness center, tennis courts and more

DEVELOPER

  • With the abundant information available to everyone today via the internet, do yourself a favor and Google your clients name. Spend some time and go to the third or fourth page and if by then you don’t see any negative blogs, chances are you should be ok
  • You can also check in with the local town or county government office where the community is and ask local officials if there is anything you need to know about your possible developer
  • There are good developers and those that for one reason or another, are not solid enough to invest your entire future with. Do your research on not only your developer, but perhaps your builder as well, as last thing you want is to live in a home without a roof!

Cruise Ship

Recently 3,350 thrill seeking passengers set sail on the Carnival Triumph to Mexico. They were in the middle of the ocean when a fire broke out that crippled the ship. It was an unfortunate incident but cruising anywhere consists of risk – considerable risk when you think about it. If done properly, removing risk from retirement or anything else you partake in can lead to a more enjoyable life. So do your research and try not to purchase too much risk because at the end of the day, you might not be able to afford it!! 🙂