Land during economic downturns?

[Lance Johnson]

I've been investing in rural vacant land for the past couple of years and am looking at diving in more.

That said, I haven't had to live through a downturn 🙃.

The big things I've thought of are:

1. Sales price of land we just bought drops.  We try to buy at 30-40% of retail and sell at 75% of retail.

2. Days on Market skyrockets.  Raw land isn't critical, so I could see the DOM going through the roof.

What other factors am I missing?

[Stuart Udis]

I believe improving the value of property, whether it be land or renovating existing building improvements should always be primary. If you allow re-assessments to dictate your real estate business you are going to leave money on the table. You also may find the entitlement process could open the door to developing the land as opposed to selling if you are concerned the cash requirements are too high. There are banks who will treat the imputed equity the same as a cash contribution. It can be quite impactful if significant value is created through the entitlement process. By way of example, we are involved in a project where a use variance increased the density from 5 single family homes to a PUD consisting of a mixture of 30 townhomes and condos. This led to a favorable appraisal and financing at 88% LTC all thanks to $1.1M of imputed equity created through zoning change. This is the power of the entitlement process if done successfully. This is only one example, but the owner of land with favorable entitlements possesses a lot of flexibility including but not limited to contributing land as part of a JV or selling the land at a premium.