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Opportunity or Saturation?

Written by Brandon Schank

Opportunity or Saturation?

Currently in Iron County, many investors are finding opportunity in buying residential rental properties and becoming landlords.  This month I wanted to discuss another segment of the market not talked about as much, and that is land.

Currently there are 594 available building lots in the Cedar City/Enoch areas of Iron County.  The prices on many of these lots have dropped into the low ranges of $10k each.  As a broker who focuses on the new construction and development in the area I view this as an opportunity because of the developments costs to develop that same lot.

Let’s take a ¼ acre lot for example.  In today’s dollars, it would cost over $20k to develop that said lot.  You have to connect the sewer to the main lines in the road, same with water, gas, power, phone lines, etc.  Then you have to install curb, gutter and sidewalks and on top of that you need to put asphalt down to have access to the lot.  Next we have to talk about the cost of the dirt.  Let’s say you find a piece of land selling for $9k/acre.  For simplicity sake, you can get 3, ¼ acre lots out of 1 acre of developable property. (You lose a little once you have installed the roads, etc.)  So the cost of the land for our ¼ acre lot is $3k per lot.  So on the low end of the spectrum; it will cost us $23k to provide an improved building lot for somebody to build a home.

Now I don’t know about you, but as a developer and broker, I don’t like to work for free.   I have interest costs, sales commissions, overhead, and hopefully a profit in the end for developing the land.  All in all, if you sell the lot for $25,000 nobody is getting rich off the deal.  The vision I am trying to create is that currently, many building lots are selling below the replacement cost.  Anytime you can buy a product that is priced less than it costs to replace is a good investment….Right?

In the last 12 months, there have been 78 building lots in the Cedar City/Enoch areas sell or are going to sell within the next 30 days.  One looking at these numbers may say, “The market is over-built” and there isn’t a demand for building lots.  In the last 12 months there has been 75 building permits pulled for new homes in the same areas of Iron County.  Part of the low demand for building lots is the availability of funding for contractors to pay for the homes.   Contractors don’t have the funding to build “spec” homes and are ultimately at the mercy of the buyers in the market.  These same buyers are finding deals they can’t pass up and are buying existing inventory rather than contracting to have a new home built for the same price.  With this lack of demand prices of lots could continue to drop even lower and may not be a good investment….Right?

One looking at either option may find they lean one direction or another.  As a real estate broker, our job is to provide you with the market information and help you make an educated decision about your investment plans.  As your broker, I would challenge you to think about the future.  Is the market going to continue to be like it is today forever?  No.  Is there a point where somebody says, the prices of building lots are so low, I am going to buy a large chunk of them and hold on to them for the future?  Yes.  What happens at that point?  They control the market and the pricing of those building lots moving forward.   Don’t look back 10 years from now wishing you had bought some building lots for $10k-$15k poised to double your money that you never invested.

Brandon Schank
Branch Broker/Partner

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