In US Housing, A Builders’ Strike?
You can argue with home builders all day about whether they're correct to insist that lower rates would help facilitate lower shelter inflation by encouraging more supply (in this case by making construction and development loans cheaper). What you can't do is force them to build.
If I'm a builder and you tell me, "No, you're crazy. Lowering rates to curb inflation -- any kind of inflation -- is madness. You're just looking out for your own self-interest," I can just stop building.
If the atte
This reminds me: I’m thinking about buying land. Just unimproved land. Are any of you land owners in that sense? As in: Just the land without a house on it? If so, is this a good time to buy? Is there ever a bad time? What are the pitfalls?
Seems builders continually bemoan a dearth of build able lots but that’s probably not what you mean by land.
If you do buy, I would think any premium for the land having a natural spring would be well worth it.
Land valuations have so many idiosyncratic factors it is really hard to answer this question. The big picture is what you think about the local economy and the entry price. I regard land as similar to buying a real commodity. There is carrying cost and no cash return. If you buy in an area that could see demand grow soon near a growing area it could be a home run. You could express this interest using a timber REIT or other land development trust company, farmland related company etc. rather than buying raw land. That would solve the carry problem, but probably knocks out the hr potential, and of course there is counterparty risk. Personally, I think the economy is slowing so I would wait for a better entry point. But if you have a different outlook it could make sense.
Raw, unimproved land has the lowest liquidity of any investment. It generates continuous cost from taxation without any offsetting income. It is also usually very hard to sell. I wouldn’t buy any property that can’t support the development of multiple uses, enough to make development profitable. My mentor, who owned his own private REIT, always cautioned us never invest in any form of RE outside of an area about which we had deep inside knowledge. Many shrewd developers buy property with an existing intermediate use such as a trailer park, outdoor theater, miniature golf course, parking garage or a similar use that pays for the land’s cost and is eventually likely to attract a serious developer to raze the intermediate use to develop the property to its highest and best use in ten years or so. If someone has targeted you with an offer for a “primo” piece of ground (you know, the kind there not making any more of) be very careful and very suspicious. As part of you due diligence I’d suggest spending a bit of cash to have the property checked out for issues by a good geologist. Many available raw land parcels are available because they are in some way secretly undesirable. All this is from my principles book.
Mr. Lucky, I should have read your book earlier in life- instead, through learning the “hard way” (my preferred method!), I have gravitated to properties that I can rent out when I am not living there. As a result, all fixed costs (real estate taxes, insurance, HOA fees) are covered by short term rental income.
By the way, did you ever know Jim Graaskamp?
Mr. Lucky,
What is your book? Where can I find it?
Thanks
I won’t bore anyone with the details of a big mistake made earlier in my life on buying a parcel of land in the mountains- but the “lesson learned” is this:
Do your due diligence in a very detailed way to understand the land development costs (to get it to the point when the land is ready for the construction of a home). Does a road/driveway need to be built for access to the building site? Tree removal needed? What is the cost to bring in water, electric, gas/propane, fiber optic cable, etc.? Does the fire department have specific requirements? If you don’t think about the fire department requirements up front- you may not be able to insure the home. These costs add up and can be really expensive!
Ok- here is what happened- in the process of buying, we had a casual conversation with a land development guy about what a driveway would cost. It was a number we were comfortable with, so we went forward with the purchase of the land. Fast forward two years later, and after getting engineering plans drawn up (very expensive) and then bidding out the construction of the road/driveway project, the actual cost turned out to be 10 times higher than we had originally anticipated!
We never did anything with that property, other than go camping on it. Absolutely stunning views of the Maroon Bells, however. 🙂
On the story, the fomc is now behind the curve in cutting rates in my view, and I am not alone. They have made this decision purposely though, as they are still concerned about service sector inflation….This is looking like a late 2024-2025 story though.
Also sort of on the story: in my neighborhood, the realtors don’t seem to bother to collect their open house signs anymore. They know they’ll be back next weekend. Houses aren’t selling because the asking price is too damned high and the monthly payment is a joke. America has always been a place of haves and have-nots, but now, every person who doesn’t own a home, or who needs to find new housing, is a have-not.
Good color on the land-buying. Appreciated. Anybody’s welcome to weigh in.
A family member is looking for a backdoor way into owning a home in a high COL area. He found a nice vacant lot in a poor-but-potentially-improving part of town. Plans to put a tiny house or prefab house on the lot. Hasn’t sold for over a year, price keeps dropping. At first I suspected that it didn’t have water/sewer hookups, which could be expensive to install, or had title issues. Then I did some sleuthing online and turned up an engineering report from 15 years ago detailing the (uncompleted) remediation activities on the site of a former auto repair place, with underground storage tanks. Lots of stories like this.
Not really what you want but…
Farmland Partners (FPI), 2 % dividend, I am Capitol loss of $100 on 100 shares.
Gladstone Land Corp (LAND), 4%dividend, I am capitol loss $1,200 on 200 shares.
So not a good investment but I am getting the dividend and i am not paying taxes on unimproved land. No home run though.
I’m sorry. SP above, capital
If thinking raw land as investment, consider front-running land use changes. So-called “housing advocates” (read: shills for developers) are successfully pushing for higher density zoning with fewer requirements. E.g. re-zone neighborhoods of single-family houses on 5K sf minimum lots to multifamily buildings on subdivided 1K sf minimum lots. The claim is that developers will then build lots of affordable housing. Which doesn’t happen, for various reasons. But land value goes up. Passive land owners are the primary beneficiaries of rezoning to higher density. 1/ So, figure out what cities are on the higher density rezoning track – but earlier in the process – and buy some developable lots. Either empty lots, or large lots with tear-down quality rental house (and have a local property manager run the rental).
If thinking raw land to build a vacation/GTFO place, consider off-grid technologies. Solar + wind + battery + generator replace utility electric. Satellite replaces landline phone, cable, and cellular. Where I live, stored rainwater can replace municipal and well. As for paved access roads, doesn’t everyone drive a SUV now?
1/ See Patrick Condon’s books, “Sick City” and “Broken City”.
Walt, you’re getting excellent advice and insight into real estate investment. Based on quite a bit of direct observation, the “intermediate use” themes have worked well.
Prime farmland is also excellent (if the neighboring farmers and large corp farmers would even let you in)
Three items I would add:
Location is everything (didn’t need to be said, but I did anyway)
Making money in real estate generally is a long game. How long will it take to make money and will it be any higher than easier alternatives, adjusted for inflation?
Here’s a great insight from a friend: In real estate you make your money when you BUY it. You can figure out the meaning
Personally I don’t have RE in my blood, except as a second home. I think it takes a certain type of investor
Good luck. Keep writing, please