Why Buy Land Now?

So let’s start with price because it really is the simple answer. In another recent blog post I read – “Why is today any different from a few years ago?” Is this just another ad campaign, conceived by less-than-creative marketing groups, telling ‘Joe Consumer’ that now is the right time to buy? Or a rip-off of the Joe Isuzu ads claiming, “There will never be a better time to buy”?

The difference with buying real estate today is that the old adage of– ‘if it is too good to be true then it probably is’ has taken on a whole new meaning. In fact, if it is too good to be true then it probably is true. And this certainly is the case for buying real estate today, especially when it comes to purchasing undeveloped land.

The last several years were a boom period for homebuilders and speculators. When this land grab ended then the rush was on to unload these lots. And the ones that still remain unsold today are selling for 50 cents on the dollar or in some cases much less than that.

In a recent SmartMoney Magazine article it was stated that, “During the boom home builders and speculators spent lavishly to accumulate land. When the party stopped, they abandoned those positions, which contributed to plummeting prices. The cost of suburban land is more than 6% below its 2006 high, according to research firm Real Capital Analytics. If buyers are not buying then prices are going to go down.”

There are huge deals to be had on land that still offer great value, both financial and intrinsic value, which is what makes land such an appealing investment to so many people. Land accounts for more than 40% of a home’s value today compared to just 10% in 1950. So the land grab is now in the hands of consumers wading through the huge sales incentives being offered by developers that range from free golf memberships to no community dues to home upgrades.

But of course, timing is everything…so now is certainly not the right time to buy land for everyone, especially “the 2.2 million families with a subprime loan issued from 1998 through 2006 that have lost or will lose their home to foreclosure in the next few years”, according to the Center for Responsible Lending.

Some of the most attractive deals lately have come from land developers and home-builders, who are divesting parcels in many parts of the country as they whittle down excess housing inventory. Even smaller landowners, facing their own financial strains, are selling off lots once meant for building.

Nationwide, land prices fell by more than 6 percent last year, according to data compiled by Real Capital Analytics, a research firm in New York. And prices have continued to decline. For instance, Real Capital said, “the price per buildable square foot on land earmarked for retail development averaged $44 so far this year, compared with $79 in 2007, while the average price for land for condominiums was $87, versus $151.”

Big investors, which include institutions like pension funds, are finding many of their land deals through developers and builders looking to liquidate assets, as well as lenders who were forced to foreclose.
Land auctions are another source. “They can’t afford the debt — it’s easier to sell it at fire sale,” Mr. Alcorn, the Virginia investor and author of a home-study guide, “Dealmaker’s Guide to Commercial Real Estate,” said of many sellers. “On average, you’re getting a discount of 60 percent,” and sometimes even 70 percent.