Lots in Santa Rosa CA

[Louie LeLaurin]

What are the possibilities of buying 20, 30, 40 lots in areas of Santa Rosa that were destroyed by the fires and sit on them for 5 years? Is there maintenance required? Will the Cities let me just sit on them? What could I expect for my ROI?Anyone out there with local knowledge that I can talk to about this?

[Brian Burke]

@Louie LeLaurin sure, it can be done.  If you own the land you don't ever have to develop it if you don't want to.  There's a vacant lot down the street from me that has sat for decades and I'll bet the owner just passes it down to their kids.  The city can't stop you from buying and they can't force you to build.

Assuming that answers the question of "can I" the next question is probably "should I".  I suppose that's an individual decision but if it were me, I wouldn't.  You'll allocate $2.4 million to $15 million by my calculations, with that range being the difference between buying 20 lots in the flatlands in the low to mid $100s up to the high range of buying 40 lots in the more expensive areas for $350K.

Most of the lot buyers today are the big builders who intend to immediately build and resell, mixed in with a few end-users who are buying to build their own home.  When I say "big builders" I don't mean the publics--I mean the local guys who were the dominant players in the market either pre fire, or pre-market-collapse that have come out of retirement.  These are the guys who built a lot of these homes to begin with.  They have an advantage because they have the labor pool and the systems & connections to achieve economy of scale and efficiency so they can make a profit. 

The advantage to your strategy is that one could argue that in five years the majority of the reconstruction will be behind us and theoretically there could be more trade labor available at that time.  But the flip side is that you'll have a ton of cash tied up for a long period of time and the return on investment when factoring the time-value of money will be pretty sub-par.

We are looking at this strategy now and see the potential for 20% returns if we are in and out quickly.  Spread that over 5 years and the return is probably closer to 4%.