South Padre Island Real Estate - Alice Donahue

Investment Opportunities

South Padre Island 1ST Quarter Stats Show Full Recovery

Incredible 1ST QTR Gains in Sales and Median Price with a Lower Months Supply of Inventory point to a full recovery for South Padre Island!

The numbers speak for themselves, just look at these sales charts for the 1st Quarter of 2009, and it's not just numbers on a chart, at AliceDonahue.com we are seeing records levels of interest on the Internet and in our office.

"We have a lot going on right now" - says Alice Donahue "we are so happy to see this level of activity on the Island again after nearly two years of slower sales"

South Padre Island is the envy of Texas and the nation with these kinds of numbers. The three most important fundamental real estate market measures all show increasing gains over the last two years.

"We are seeing a lot of interest from Mexico and the Rio Grande Valley on the Island and cash buyers from our Texas Metros and other parts of the country" - says Alice "Also the newly completed Sapphire Towers on the Beach are bringing a lot of activity"

Inflation Hedge Spotlight

We agree with Warren Buffet on inflation and that the remarkable and limited supply of South Padre Island's uniquely tropical resort properties are a great hedge for the future inflation that is predicted by most economists and investors.
Read about inflation in this article by the Texas Real Estate Center

"with all the money (over a trillion dollars) the federal government is printing to stimulate the economy, it only makes common sense that sometime in the future the money supply will be diluted and hyper-inflation will result" - says Michael Stuart of TexasGulfCoastOnline.com
"when that happens, one of the few investment options that will hold their value will be rare and remarkable real estate like that we have on the Texas coast" "we have the best market fundamentals and most affordable oceanfront property in the United States" - says Stuart
Billionaire investor Warren Buffett says the US economy has "fallen off a cliff" and warns that inflation may accompany a rebound. Buffett told CNBC television that US economic developments were close to the worst case he had imagined and said recovery would not happen fast.

Sales are up, Median Price is up and Inventory levels are down, see the charts below:

check out some of the new products on South Padre helping lead the recovery
click here to see our new 2009 low level flight aerial tour

Texas Coast Leading Sapphire Beach Highrise	Newly Renovated Isla Grand Beach Resort
The Shores Beach to Bay Walkable Community	Marina Vista Villas Storm Proof Townhomes

Also see the land tracks that are now attractively priced on South Padre's north-end
- where approved utilities and future development could double the size of the town.

Comments

By Rudi @ Friday, May 15, 2009 1:35 PM

I think it's the investment hedge on inflation for both the U.S. dollar and the Mexican Peso,

(both heading for inflation - with the Peso their already)

that is making South Padre so attractive right now with the case buyers.

By Mike @ Friday, May 15, 2009 4:33 PM

Rudi, I am sure your meant to say "there" and "cash".

I agree with your thought that paper currencies, dollar or peso, will not hold "their" value as well as South Padre's real estate will in the anticipated hyper-inflation period to come.

If you have the "cash", the Island is a great place to park some of it. High rental and sales demand, with a limited supply.

Yet it's still difficult for some to get financing right now and if you finance the purchase, it's no longer as valuable a hedge on inflation.

By Maria Carmen @ Saturday, May 16, 2009 12:04 PM

That is a beautiful and unique picture of Sapphire, one I have not seen before. It certainly looks better from the air than just driving by. Thanks for the nice web site.

By Island Investor @ Monday, May 18, 2009 4:44 PM

Those statistics can be beguiling. To me it looks like just 18 condos sold on the entire island in April - (1) one bedroom, (5) two bedroom, and (12) three bedroom condos. Considering how few three bedroom units there are on the island, those sales statistics are rather strange. I don't know what's going on here, but it suggests those fancy Sapphire condos are finally starting to close, skewing the median prices upwards? Though sales are still far from robust, it certainly is refreshing to see some new high-end investment on the island finally take root.

By Mike @ Thursday, May 21, 2009 11:01 AM

In general, the Mexico Buyers Prefer the 3 bedrooms condos and the USA buyers prefer the 1 and 2 bedrooom Condos.

By Island Investor @ Friday, May 22, 2009 8:29 AM

Mike,

I'll agree with that. Mexicans generally have larger families. The Mexican property owners that visit South Padre also tend to be rich, at least by Mexican standards, making 3 bedroom condos more affordable and desirable. (Not to mention that they also often bring their nannys, creating a need for larger condos.)

Your comment however seems to suggest that it is Mexicans that are doing most of the buying on South Padre these days, as those big expensive three bedroom condos are outselling the smaller units which make up the bulk of the available inventory. Did I get that right? If so, maybe the island should be spending more of its overall advertising budget in places like Monterrey?

Without any solid data I still suspect those big expensive Sapphire condos are finally starting to close, and that's skewing the island's median sales price upwards in the face of a serious downturn in the overall market. Or at least that is my best theory, unless you have a better one....

My other major concern for not jumping in head first into this market is that the market for vacation property is a lagging economic indicator. That is, people aren't going to start buying vacation homes again en masse until they FEEL good about their personal economic situation, and the immediate prospects for their future. It seems like even the most optimistic economists don't think employment will pick up until late this year at the very earliest. So I can't imagine the island's real estate market picking up until sometime after that. That's just my opinion.

I could be wrong though, and I'm not an economist. The lack of serious price declines we're seeing is trying to tell us all something about the island's property values. Sure we've seen some price declines, but nothing compared to places like California. Perhaps Mexican property owners on SPI are holding tightly onto their properties, given that it looks like a solid investment in the face of the recent peso depreciations.

It's also obvious that rich property owners, Mexican or otherwise, have less need to sell their properties. It's almost as if the higher end properties tend to maintain their values better than lower cost properties, a concept worth investigating for serious investors.

I am curious to know how much "overhang" there is out there, that is the amount of properties that would go up for sale if the market for real estate was a little more robust. Surely there are a lot of property owners out there that would put their property on the market if they really thought they could sell it for a decent price in a reasonable period of time. That makes me wonder if SPI's market will make a VERY slow recovery.

Something else I've noticed is that a lot of island properties have been on the market for a very long time. That suggests many owners are in denial about the true market value of their property. I suppose that's fine if you've got the resources to hang on until we reach a full recovery, but it also suggest that some of these owners are eventually going to cave in, and that would depress island properties even further - or at least further slowing the recovery for everybody else.

The beach erosion problems also have me worried. At high tide there simply isn't much beach left, and that's the primary attraction for this island. Although there have been some good efforts to fix this, the overall problem seems to be out of control. That is very worrisome to buyers looking for a long term investment.

Is it possible that we'll see a larger percentage of retired property owners in the near future. Retired folks tend to have a smaller percentage of their investment portfolios invested in equities, making them more able to buy property than younger folks that have been wiped out by the recent stock market crash. If true, perhaps properties with elevators will become more desirable, as many older people have trouble with stairs. It's something to think about. Businesses that cater to older folks may also benefit from any trend like this. Perhaps this will eventually convince somebody to build a serious hospital somewhere in the surrounding area, as it will be hard to attract more retired people until we get some serious medical facilities. (another chicken-or-the-egg scenario.)

I don't think this is all bad news for you real estate agents. In coming years I think you're going to be catering to richer & older folks, which isn't a big deal. In the near term I also think you're going to see a perceptible increase in forced selling, which isn't all bad either, because you pick up a commission either way.

By alice Donahue @ Saturday, May 23, 2009 7:55 PM

It has really surprised me as well that out 1st Quarter stats were so high but when I researched it I discovered that the sales have been in all areas, condos of course leading the pack but we have had a flurry of single family and land sales as well. The Sapphires have started closing but they are not skewing our numbers as far as I can see because more of the sales are elsewhere. The people from Monterrey are buying and paying cash but most of the buyers that we see are Texans and Mid Westerners. Most are Baby Boomers not quite retired and I am seeing a surprisingly large amount of investors steering away from the stock market and taking advantage of the lower prices and more motivated sellers. We have not had this on South Padre since the mid eighties. Our office is very busy and I am deligjhted about that. I don't speak for Michael but since he's my sweetie I'm sure he doesn't mind me commenting. Please keep writing, It makes me happy to see people interested in Real Estate on South Padre.

By Island Investor @ Sunday, May 24, 2009 11:08 PM

That was an interesting comment about people getting scared away from the stock market, and putting their $$$$ into hard real estate. That never crossed my mind before, but I wouldn't be surprised if we scared a whole generation away from the stock market. You agents should take advantage of this fear factor, and start advertising in the business section of the state's largest newspapers!

"Feeling Burned by the stock market lately? Come to sunny South Padre where property values haven't deteriorated nearly as much! Sitting on the deck at Louie's, watching the sun go down while drinking a cold beer will also melt all your tension away. SPI deals have never been better."

Another thing you agents can advertise is the likely upcoming inflation trend. Obama has been printing money at a record pace, and that's guaranteed to drive up inflation in the coming years. In a situation like that, real estate looks much better. Imagine how good real estate is going to look a couple years down the road if you've locked in a 5% mortgage and inflation is running at 12%. To me, that sounds like an all too realistic possibility.......

By alice Donahue @ Monday, May 25, 2009 11:42 AM

Mr. Investor - If you read my comment carefully I never once said "scared" of the stock market. I think people just want something more tangible and safe right now. I mean think about it - if you had to you coudn't live in your portfolio! But you can retire to your rental property. I personally have 2 investment properties in the area right now and both of them pay for themselves. As for advertising in the newspaper, we haven't done that for 4 years! I appreciate your remarks and welcome any new ideas.

By Island Investor @ Monday, May 25, 2009 10:12 PM

In today's environment it would be easy to make the case that real estate should be part of any good balanced portfolio. Leverage that fact in your advertising. Believe it or not there are still some legendary investors out there like Jim Rogers who still think the stock market will get worse before it gets better. I don't think anybody can really predict the future, but for anybody still deep in the market, it's still a very scary situation.

Perhaps the time is ripe to re-invigorate that "investment club" of yours, or whatever you call it. I saw you mention it on your web site, but you offer few if any details. Perhaps you should expand that web page to include some real life investment/profit examples. Show us all the juicy details of some specific deals, and your track record. Then advertise it in the business section of some big-town Sunday newspapers, with a low initial investment requirement, say somewhere in the area of $50K. I'm sure there are a lot of smaller investors out there that would like to diversify into some island real estate, but not enough to buy and maintain a beachfront condo. In other words, if you had some kind of painless way to invest smaller amounts of money into the island's real estate market, that could work very well in today's market. (Then, after you get good at it, you can demand larger amounts of money to join the club.)

I think I did hear something about a mini investment club in the Radisson, with the condos put in a rental pool, and investors can still use them sometimes, right? Maybe you could start a business like that, on a much larger scale. Something similar to the time share business, but with the primary objective being to flip properties for a profit.

I've looked at buying island condos then renting them out, but there's a few problems I've run into. From what I can see there are only a handful of condos on that island in which the rental income can really come close to paying the bills, like those land-leased, run down Bahia Mar units. And I don't see any property price appreciation there, because they seem to be falling apart. (though I did hear they got a pretty good renovation after the hurricane.) But they are nearly beachfront, so they do seem to earn some decent rental income. And then there are those special assessments that always seem to pop up out of the middle of nowhere. Yuk.

I'll be honest with you, it's not fun driving around with agents looking for a good deal. It seems like every time I find a premium property at a discount price somewhere in the valley, it's some kind of distressed property previously owned by some Mexican drug lord, his lawyer who just had a stroke, the widow of a deceased drug lord, or a crooked Mexican politician. Not the kind of property you feel like taking a personal stake in. It would be much easier to be a silent partner in an investment club, with a manager that really knows how to make money in real estate.

I should also point out that I really do admire good agents. The kind that know how to make their investors money, and really understand how investors think. I'm talking about the kind of agent that is in it for the long haul, who aims to make money flipping over and over again, not just a fast one-time deal. Agents like this are however however few and far between. It seems to me like with the real estate "retail business" currently in pretty bad shape, maybe you should be aiming for a different kind of client - the kind of investor that you develop a deep and long lasting relationship with. Or a serious investment club. It would likely be a very different business environment for you, but nobody knows island bargains better than you, right? Who knows, you may like it so much that you never go back to the retail business. (But then again a lot of agents thrive on meeting new and different types of people, so I'm sure this is not for everybody.)

I remember a long time ago during a very deep real estate recession seeing a few agents being forced into the property management business. It's not something they wanted, but it did pay the bills until the market came back to life. I've also saw some consolidation with independent firms merging, though I don't know if it ever really did any good. I guess it could help leverage operating expenses, right? Maybe you could pick up some of these other staving agents on the island, and slowly build a larger empire. It might seem counterintuitive to pick up more agents when so many agents are disappearing, but counterintuitive thinking is how you make money.

Oh boy, my mind really wanders all over the place, now doesn't it? You really want to talk about island real estate with a nut case like ME?

By Matt Weinschenk, Senior Analyst, The White Cap Report @ Tuesday, May 26, 2009 10:06 AM

New research from Bob Gordon, macroeconomist and member of the NBER business Cycle Dating Committee, reveals a robust indicator - based on unemployment - which pinpoints we are at the end of the current recession already.

The ends of recessions were predicted four to six weeks ahead of time, for four out of five recessions. That’s an impressive track record. Even the off-value, the 1991 recession, was still identified within three weeks of the recession’s bottom.

New claims peaked on April 4. On Thursday, the Department of Labor reported an additional 12,000 decline in claims from the previous week.

Read more at: http://www.investmentu.com/IUEL/2009/May/the-end-of-the-recession.html

By Island Investor @ Tuesday, May 26, 2009 10:24 PM

OK Alice, here is my billion dollar idea for how you can get rich in this economy. First, consider your assets. You know the island upside down and backwards, and can spot a deal a mile away. The other very unique asset you've got is an island in which many investors would love to spend their annual vacations.

So here's the business plan:

You open up an investment club, with a minimum of $50K to join. You start pooling money together, and when you get enough, you start buying distressed property that you're sure you can make a profit on. Then you fix 'em up, and get them into showable/rentable condition, with basic furnishings. As an added bonus to your investors, you allow investors two weeks stay at any of your available properties for each $50K they invest. Property inventory however turns constantly, so it's quite different than a typical time share. Any investor who stays at one of the club's condos has to recognize and appreciate that all the properties are being actively marketed, and they're going to have a lock box on the front door - in case any potential buyer comes by.

Then, at the end of each year, you total up your P&L, and declare a dividend for all investment club members. Given the wonderful fringe benefit of free vacation stays for members, I doubt if you would need much of a dividend to stay in business.

The whole thing is sort of a cross between a REIT and a timeshare. I'm not a lawyer, but from a legal standpoint it would probably be a pass-through entity, able to distribute the majority of income cash flows to investors without taxation at the corporate level. Plus, you could probably pick up a lot of small investors that weren't yet ready to dive into the island's real estate market head first. Another obvious advantage is professional management for investors, without having to personally negotiate sales transactions. And it helps get the island's real estate market cooking again.

So there you go, I just figured out how to make you rich, and I didn't charge you a nickel for my idea. Let me know when you want me to start sending you the checks.

By Sand Man @ Wednesday, May 27, 2009 4:00 PM

http://www.hulu.com/watch/10310/saturday-night-live-bad-idea-jeans

By alice Donahue @ Wednesday, May 27, 2009 8:42 PM

Mr. Investor - Thanks for the great idea! We actually do have a Buyers Club but I have not been paying attention to it the way I should. I have already started researching some properties that might fit the criteria. Also, the Isla Grand has a tower that is 90 privately owned condominiums. That is where we own and we have our unit in the rental pool which does cash flow. It is a "true" rental pool which means that everyone gets a share in the revenue as long as they are in the pool on that day. As far as agents go, I really can't speak to that because I really have the best agents and I have very loyal clients that have been with me a long time. No one has a crystal ball but I really feel like we are on the upswing in South Padre and I know there are people that don't agree but we have the figures to prove it. The numbers we provide come directly from the MLS we don't make them up. I really like your ideas and will start the investors thing going and give you a progress report real soon.

By Sand Man @ Monday, June 01, 2009 5:36 PM

No gambling resorts per Texas legislature.

By Curious guy @ Sunday, June 07, 2009 8:10 PM

Does anybody know how long it took for island real estate prices to recover after the 1990-1991 recession?

By Beach gal @ Friday, June 19, 2009 2:27 PM

I heard the state legislature just authorized a 1.5% increase in the hotel occupancy tax, and SPI will use half the proceeds to help renourish the beach. That new tax could be good for residential property owners, because a better beach will make island property more valuable. But it could discourage tourism, and therefore the value of local businesses, at a time when we need as many tourists as possible. So what does everybody else think about this? I'll be the first to admit that the beach needs some serious help, but I'm not sure if soaking tourists during the middle of the deepest recession in decades is the best way to do it. To me this seems like a failure of the local government to find money elsewhere to fix the beaches. (I'm also curious to know what will happen to THE OTHER HALF of that new tax money.)

By Concerned @ Sunday, June 21, 2009 9:29 AM

Yes, there is already a nasty 13% occupancy tax for stays on the island of less than 30 days. But the local government gets only 7%, with the other 6% going to the state (collected quarterly). Total occupancy tax collections for 2008 decreased almost 18% compared to the previous year, but most of that was likely due to hurricane Dolly. It would however be hard to blame Dolly on this year's continuing decrease, which for Q1 was down roughly 27% over the comparable 2008 Q1 period. One can only assume that is due mostly to the poor economy.

Assuming that higher taxes discourage tourists, you could easily argue that this is the worst possible time to be raising the occupancy tax. More tourists are going to be forced to limit their visits to simple day trips to the public beaches, and that isn't good for the rest of the island. It also hurts individual property owners who depend on rental income, and make up about 38% of the island's total rental pool.

How much will this new tax really help rebuild the beaches? Based on the total occupancy tax revenues for 2007, an additional 1/2% earmarked for beach restoration would only amount to about $206K. I don't see how you can do very much work on the beaches for a measly little $206K. Heck, I bet we spend more than that just raking up the seaweed every morning.

I am however short on good ideas for fixing the beaches, so shame on me. The idea of a special bond election is interesting, but the problem with that is that nobody can offer us a guaranteed beach preservation service. Every beach restoration idea proposed so far is nothing more than experimental, and you can't really have a bond election without guaranteed results. Now if some new business came along that promised guaranteed results, and actually had the financial resources to back up their guarantee, that would be a REAL interesting opportunity for the island to consider.

Last year when the economy was bad, and gas prices were high, I saw at least one condo rental firm offering gas cards to lure more visitors. Unfortunately, when times are tough, you've got to do whatever it takes to stay in business. Gas prices are up again this summer, but not as bad as last year. Still, I agree that now is the worst possible time to be increasing occupancy taxes for tourists. That idea could seriously backfire.

Some local politicians would argue otherwise. Galveston and Corpus are already up to 15%, and that's a half percent higher than the 14.5% tax rate that started on SPI June 10th. So SPI is a deal, eh?

BySly Sydney @ Sunday, June 21, 2009 8:39 PM

What we need to do is declare an "occupancy tax free summer" for tourists, and advertise it all over the nation. Imagine such an advertising campaign:

"Galveston and Corpus Christi will quietly rob you at the hotel check-in desk, but South Padre Island will save you 15% off your hotel bill so you can buy your whole family a couple nice dinners at one of our beautiful seafood restaurants!"

South Padre government would MORE than make up for the lost occupancy tax revenue with significantly increased sales tax revenue.

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