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Investor Report: Residential Lots

By Paul F. Stillwaggon Warren NJ

Real Estate Agent with Weichert Realtors

June 19, 2009 12:21 AM

It might sound a little surprising, but in investment real estate, residential lots are hot, especially in markets that saw the highest peaks and the worst busts during the past three years.

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June 2009

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On Florida's west coast, Gary Tasman of Cushman & Wakefield affiliate Commercial Property Southwest of Florida, says bulk purchases of developed building lots are "really brisk right now" with prices in some local areas nearly doubling from their low point.

The reason: Home builders are now looking ahead to 2010 and 2011. They see the rebound already taking shape. And they need well-located lots ready to go for the future construction they're planning.

The best deals are bank-owned lots taken back in foreclosures from earlier, unsuccessful developers. They often come with bare-bones pricing, but Tasman warns that rising demand - from builders and investors - is putting pressure on those prices.

For example, in Cape Coral, some lots that once were selling at $5,000 to $6,000 now command $9.000 to $10,000 or more, Tasman told Realty Times in an interview last week.

In other boom-to-bust-to-rebound markets - Arizona and California for instance - similar land rushes are getting underway again.

Gregory Vogel, CEO of the Land Advisor Organization, based in Scottsdale, Arizona, says demand for bulk-sale, deep-discount residential lots is now, in his words, "nothing less than stunning."

Publicly-traded builders are scooping up developed lots by the hundreds in REO transactions, he told Realty Times, and are then "land banking" them for their own building - or for resale to other builders or investors - in the coming several years.

In one recent sale, Communities Southwest bought 891 foreclosed single family lots from Bank of America for $8.3 million. A major land banker in its own right for the past two years, Communities Southwest now is marketing about 2,000 lots - primarily targeted at builders gearing up for better days ahead.

But there's an important factor to keep in mind if you're looking to invest in residential lots in the coming months: There is virtually no financing available for developed lots. So-called "A-D & C" loans - that's acquisition, development and construction - are few and far between from banks or other conventional lenders.

So buying lots at deep discounts - attractive as it may be -- is an all-cash investment activity. You go in with your own bucks. Or you partner with equity investors who know good timing when they see it.

Written by Kenneth R. Harney
June 19, 2009