All Forum Posts by: Adam Bileckyj

Yes, raw land gets hit hardest during a downturn.  However, buying raw land (if you're not an experienced development company) is EXTREMELY risky.  You need to understand zoning, entitlement risk, political environment, local neighborhood groups (NIMBYs), water, sewer, electricity, gas availability, soils, grading, drainage, environmental issues like endangered species, and the costs of all the items just mentioned.  If serious, get with an experienced local land broker than understands all the details.  Most raw land (unless its infill) has very little potential to be developed because one of the above items is 'missing'.  It just takes one thing to be wrong to prohibit development...imagine you have everything except for sewer...you're dead in the water.  raw land = crazy risky. 

Our next RE investment is likely to be a high end location ADU.

We were recently beaten out on a great candidate RE that I was disappointed we lost out on, but with the current uncertainty I am less disappointed. I am unsure we would make the same type of offer as we were willing to a month ago (but if it falls out of escrow I will consider it). It was in Green Valley for $850K. The low price is due to a both being dated and being on a busy road. The actual house was large (not large for Green Valley but large for many areas of San Diego) with an existing addition that already had its own entry. It was set up great for JADU and had barely enough land (this was a risk) to place a stick built ADU (there would be some risk associated with the ADU - Will it fit). We were going to start with the ADU (2 BR, 1.5BA, 1 car garage) and hope rules change to make JADU a possibility for non-owner occupied. About $1.1 for 2 units in Green Valley. Eventually $1.15m for 3 units in Green valley. As you likely know, almost every unit in Green Valley is over $1m (up to ~$2.5M), so 3 units for $1.15M would be great, 2 units for $1.1m would be good.

@Adam Bileckyj It is not necessarily about timing the market it is about taking advantage of the opportunities that are out there. Someone with land may be more willing to sell at a deep discount because they are cash strapped for whatever reason. If you know you have a great deal with certainty, jump on it for land, and then if you could hold it, you could develop (not advised) or sell when the market is higher. But regardless, you have to simply have a great deal to start with no matter the market. 

Every downturn is different on both a macro and local level.  

I do not know how raw land did, but San Diego county homes suffered around 20% decline in the Great Recession (GR).  There were areas that suffered worse.  Valley Center had recently completed a large residential community that had issues finding buyers.  It drove the entire area down more than most other areas.  However, the area where our rentals were located suffered no noticeable decline in rents.  People moved into high occupancy living situations but the banks had so many empty units the supply and demand stayed fairly level.

The 1987? stock crash was a few years before I purchased our first RE, but I do not remember it resulting in a significant RE price decline but I was just graduating from college and could have simply been unaware.

The Dot Com bust (circa 2000), in the local market, had RE prices rising.  We purchased a great RE in 1999 that had enough appreciation (mostly market appreciation but a little value add) that we were able to leverage it to do 2 additional purchases (I think both in 2000 but one may have been 2001).

The issue with the GR on taking advantage of the price drop is that money became scarce.  Only wealthy investors could get financing to take advantage of the situation.  So a lot of the wealth to be made on the reduced price was by housing corporations and some by REITs.  If you cannot get financing, it is not easy to buy much RE.

To summarize, down financial markets have not always resulted in down RE markets.  I suspect the same is true of raw land.  The one time in my RE investing life that the down financial market did result in large declines to RE prices, the scarcity of money made it difficult to take huge advantage of the situation.

Good luck

The confusion regarding the JADUs and owner occupancy comes from the information source. If you read AB 68, it clearly states renting out a JADU requires owner occupancy. If you read the revised 65852.2, (Section (a)(6) & (e)(1)), it seems to tie the JADU to the ADU non occupancy requirement until 2025.

https://www.hcd.ca.gov/community-development/housing-element/docs/ADU_TA_Memo_Final_01-10-20.pdf

After 2025, those who permitted ADUs/JADUs will continue to be able to rent out their properties without living in them. Those permitted after 2025 will not.

 Hey Adam,

You're right its not that different than living in a multifamily but on the plus side we get to live in a residential neighborhood. I built a double wall with RC channels and inside that minimize the noise (could barely hear anything coming from the unit. I also have a decent size back yard and added a fence to the unit to separate the yards. My wife doesn't mind it at all because we still have our privacy It's not bad at all especially for some excellent cash flow.