The Case of Disappearing Property

On today’s show we’re talking about how properties disappear from the market. No, they weren’t demolished. I’ll tell you where they went. 

Harry Dent is an economist who bases his entire thesis about the economy on demographics. Demographics can predict so much about human behaviour. We know that there is a range of ages when people spend the most money on education. That’s usually between 18 and 24 years of age. We can use the number of live births to predict the number of diapers that will sell in a given year. We can use demographic data to predict housing trends. 

As real estate investors we know that real estate is hyper-local. So how do you map the knowledge of the macro economy and demographics to the specifics of your local market?

It’s by understanding who your ideal customer is, and then overlaying demographics on top of the needs of your ideal customer.

Today we’re going to talk about that huge demographic group called the baby boomers. The oldest baby boomer is 73 years old today, and the youngest is 55. For the next decade we’re going to see that demographic group retire in growing numbers. That’s worth paying close attention to. 

This past weekend I was speaking at an investor conference about a vacation destination. I actually met several people who had purchased in the same destination, but not as investments. They chose to live there. 

When people retire, they often have certain life goals. They want to downsize. They don’t need such a large house. They don’t want the effort and expense of cleaning and heating a large space that they’re only using a small fraction of. 

They also want to travel, so for many that means having a place where they can confidently leave and know that the property will be safe. If the property has a large yard with grass that needs to be cut, or a laneway that needs snow clearing, that’s not as good a fit as a condo in a complex where there is maintenance staff onsite and the majority of maintenance items are the responsibility of the condo corporation. 

Some people want to retire to the beach. Some will want to retire to the chalet in the mountains. They want to spend time in an environment that is emotionally uplifting and inspires them on a daily basis. 

Some will choose to rent and experiment with a number of locations over a period of 4-5 years before finally settling on a single location. Others will choose their dream pad very quickly. For others, they will maintain multiple residences and move with the seasons. 

This particular demographic group is looking for walkable communities with lots of community amenities. They’re looking for desirable destinations. They’re looking for buildings with on-site amenities and strong on-site management. They’re looking for a resort lifestyle where they can walk to the beach, or breath in the mountain air. 

These properties were often built as condo’s in resort complexes. They were intended to be part of a rental pool under the hotel management. But the condo hotel model means that an individual owner can purchase a unit and owner occupy the unit whenever they want. Of course, when it’s owner occupied, the hotel can’t rent it out and the owner gets zero revenue for those nights. 

The investor will value the property based on multiples of income, where the income is determined by the seasonal factors and the nightly rate. For the owner occupant, their price criteria is based on the value to them as a home. 

As you pay attention to the laws of supply and demand, consider that supply may actually shrink in some rare cases where properties are highly desirable. We always look for those special situation where there is more demand than supply.