Investors sometimes make investments in real estate that turn out badly. There is an old saying in the Virgin Islands that "the man that makes a small amount of money in the Virgin Islands is one that started with a large amount of money!" Many may blame their loss on the "real estate cycle" when actually there were mistakes that could have been avoided by better planning and analysis.
Based on over 35 years experience in real estate, I have identified several costly mistakes. Here are a few:
Misjudged Demand.
Developers have faced costly setbacks by assuming that customers existed without undertaking adequate market analysis. For example, a mixed-use retail/office development designed to attact EDC businesses and upscale shoppers just when the Territory’s EDC Program had a setback from additional federal regulation and upscale shoppers took it on the chin in the current economy.
Faulty Property Analysis
Investors invite catastrophe by failing to thoroughly examile all physical aspects of property improvements, including size, structural stability including resistance to potential natural disasters, and mechanical systems. Some investors have suffered losses by relying on rough estimates for rehab costs, not securing competitive bids or by purchasing multi-unit buildings after seeing only representative sample unit carefully selected by sellers. Knowledge is power. Be an informed consumer in residential, commercial or investment property.
The Investment Fallacy
Too many people have equated real estate investment with a more passive "buy low, sell high" investment in assets such as stocks or gold. They have faled to recognize that time, talent and work must go into maintaining and enhancing a property’s value. In the islands, we have witnessed many an off-island landlord wonder why their investment is not doing as well as it was with the last owner. Management – hands on management either by the owner or by a qualified manager. New investors often fail to understand that income properties and "investment" properties, particularly in the Virgin Islands, are largely fruits of imaginative and capable management.