Land v Property: Which is more valuable?

Question

Hey everyone,

I came across an opportunity that I'm not sure if I should spend a lot of time on. Someone wants to sell me their land because the home burned and was demolished. I was unaware of this when I sent the letter and being new to rei, I've only learned to analyze homes. How do I know I can offer the owner a fair amount and it still be a good deal for me too?

John Becker · Answer

To answer the question posed in your title, consider exactly the same house on exactly the same sized lot except that one lot with the house is in Malibu, CA and the other lot with the house is in the middle of the desert. Same house on each lot but the value comes from the location of each lot.

To find that value a good place to start is the county assessor's website. Find their "Property Search" function and pull up the property by address, name or parcel number. Assessed value rarely equates to market value but what you really want to check here is who is listed as the owner and whether or not there are any back taxes or liens on the property. There should also be a map with other information and depending on the website, they may even show recent sales in the area.

Recent sales of similar properties will give you the best barometer of value so head over to Trulia.com or Realtor.com and search recent sales in the area your lot is in. Then a good final check for value is to call a local real estate agent and get their opinion. Find one on the previously mentioned websites that has a vacant land listing in the area your lot is in.

There are obviously other factors to consider, like the foundation of the burned down house may actually be a plus, but the above will get you in the ballpark. And despite what many think, vacant land can cashflow with seller financing. Not only can you get a good return over 10% but there are no tenants to deal with either.

Raul Martinez · Answer

You can contact a Realtor working the area where the land is located and pull some comparable sales for vacant land sold in the last 6 months. An additional tool to use, but not always accurate, is to check the local county property appraiser's website to see what value they placed on the land.

Once you determine the retail value of the land, then you would have to determine if it's a profitable investment or not based on your purchase price.

My advice is if you're in a position where would like to make a quick flip, this may not be a favorable investment for you. Vacant Land typically sells a lot slower than land with a home built on it.

Gene Hacker · Answer

To get a idea of value...If you have a real estate agent that you work with, have them run comps on lots in the area.  Most MLS systems have lots as well as houses.  Then look into how long the average lot sits on the market.  In my area vacant lots are much less liquid than improved properties.

As far as an investment goes, land isn't really that great because it cost you money it doesn't make you money.  If you buy the right rental it will cover all expenses and pay you monthly profit.  Land generally dose not produce any revenue so you tend to have pay all the expenses of ownership.

Raj Gandhi · Answer

County taxes should show the assessed value of the land separately from the property.  That should give you a starting price but not really a rock-solid number.  You should also be able to inquire with the county on tax forfeitures and auctions for vacant lots.  If any occurred then it will help determine the market price of vacant lots.

Alternately, use Zillow or something similar to find valuations of neighboring properties.  Find a way to estimate new construction costs ($200/sq ft?).  Subtract estimated final value from construction price.  You're left with lot value and profit.

Note, at least in my area, conventional lenders won't loan money for unimproved land.