Land is one tricky commodity to acquire. It’s not like buying a house where you can readily see the neighborhood comps and see what the typical house in that neighborhood sells for on a per square foot basis. As a result, our brains when we don’t have enough information quickly filters value and quality by price. However, the attributes of each individual parcel of land can vary greatly not just in the area, but even in the same subdivision. For example, the soil and well depth in one area of the subdivision can be completely different from another area of the same subdivision. Thus, the property that has the higher price must have the superior attributes than another parcel in the same area or so our thinking would go.
As an example, I just spoke with a seller today about her 20 acres of land in Lassen County California. She was listing her property for $14,000 even though her neighbor was selling their property for $69,000. I asked her why would her land be so much less expensive than the adjoining parcel? She said the adjoining parcel had power, and a well. Power and water already on the land makes it much more valuable than undeveloped acreage! Yet, without digging deeper it was difficult for me to assess if the $14,000 for 20 acres was reasonably priced, a screaming deal or a big mistake.
My next call was to the County assessor. I wanted to find out the last 5 comparable sales in that area. That would at least give me a better idea of the price even though it was impossible for me to determine if the other properties were improved with power and water or unimproved. Nevertheless, I always find getting a price range in an area helpful. Unfortunately, the prices were so random that it was impossible for me to see any type of pattern in that area. Plus, there weren’t enough sales in that Township Section and Range to know if this was a comparable sale or not. Therefore, my next call was to the local water drilling company. The driller stated that it would cost $48 drilled and cased per foot and $800 for a 20 foot sanitary well seal and then $146 for the County water well permit. So on average he said that in this area he would have to drill about 100-150 feet. So the total cost would be about $5600 for a 100 foot well that would pump 15-20 gallons per minute which is really good. I then figured if I went the solar route in this area it would cost about $10k-$12k for power.
Now I had my rough numbers. I figured $14,000 for the land plus $7500 for a well just to be conservative, then another $12,000 for my solar power solution. So the total price to have a comparable piece of property to my potential neighbor would have been $33,500. Based on my rough numbers and the fact I had $34,500 in potential profit to play with, it would be worthwhile to continue investigating this property.
Obviously, as I’ve discussed before, the property would have to be compelling to me and hopefully another buyer/investor. If I had simply looked at the $14,000 price for 20 acres and listened to my gut which immediately said, “This seems too cheap to be any good” I may have missed out on an unbelievable opportunity. Perhaps the seller was desperate? Or, they inherited the property and had no idea what the value of the property was. As always, you have to do your due diligence to determine if land that seems at first blush is really cheap is flawed or an excellent opportunity!
If you find a piece of land that you think may be too good to be true, shoot me an e-mail and for a small consulting fee, I can help you with your due diligence and walk you through the process so the next time you locate property you won’t just dismiss cheap land as being flawed.