What Would You Do? Sell or Hold?

Question

Brief back story: I purchased a city parking lot at tax sale for about 1,800. It's assessed for around 15,000 , but real estate activity is pretty poor in the city and I really don't see it selling any time soon... Although it's on a major road, so I think there's a good possibility of appreciation.

Sell strategy: I was hoping to sell for at least 5k, but really closer to 10k. I have a current offer of 3,500 and am seriously considering taking it.

Hold strategy: I have a guy paying me 75/month right now to park there (he has a semi and basically has no other parking options). Real estate taxes are approximately 300-400/year. Obviously based on an income valuation, it's worth more than 3,500. However, the lease agreement is month to month, and I don't know how reliable the income stream is.

What would you do? Sell for 3,500, or keep taking the riskier 75/month and hope for a better offer?

Here's what I've been considering: selling now for 3,500 and retaining a purchase option for like 4,000... That way I get to keep the benefit of appreciation. I think the buyer will agree to it.

Account Closed · Answer

While the property has been assessed at 15K, it is clear the current market value is much less than that.  You have had an offer at 3500 and perhaps can get 5K.

Seems to me you have a couple of choices.
1) Get out now with a sure profit.  Not a bad return on a small investment.

2) Hold on to the property for speculative reasons.  If you can recoup your annual costs by renting the property that would keep you at least in a neutral position.  It sounds like you have good cause to get the property reassessed at its current market value which would lower your property tax bill.

Also if you want to hold it long term, I would study what your options are for the property.  Is there a better use for the property in the future?  It sounds like a busy road, but is there other businesses nearby?  How is the property zoned currently?  Could the property be rezoned to maximize your options?

You might want to talk to a local developer to get there opinions.  It wouldn't hurt to get to know someone on the city planning board.

Like Ann Bellamy said, it is a small investment and depending on your situation, it might be worth speculating on the future.  The gamble may payoff well.  In the mean time I would do some homework.

Ann Bellamy · Answer

If you're 25 years old, and if the parking lot is not an an area that is trending downward, I'd keep it for 20 -40 years, given the small investment you made in it.

Jeff B. · Answer

+1 on getting other renters to increase the cash flow.  If you sell for 3500, you're locked in with that small chunk of cash (I would be very surprised if someone would buy it, giving you the right to buy it back if it appreciates).  If you can get 2, 3, or more other truckers willing to pay the $75/month to park, you're sitting on a nice cash stream that, while it won't make you rich, it will definitely buy some groceries.  Plus, then you have the potential appreciation.

Joel Owens · Answer

I would look at what is around it.There may be close by land or parking lot owners that might buy it at a bigger premium versus a buyer who has nothing nothing else in the area.They could connect to it and increase their footprint.

As a buyer I wouldn't be want to pay 3,500 and let you have the upside down the road.If you  find a buyer that dumb I guess good for you and bad for them.

We had a developer about 3 years ago wanting to sell the 80 acres they had they were developing in town for residential and commercial. (I wasn't involved with the deal).

The developer is a big national home builder.

They were trying to sell the raw commercial and residential (mixed use) land off for a reduced price.They would then show a loss on paper to the IRS to pay less taxes that year but wanted a buy back provision for the best parts once it was developed.

Creative idea but no buyers were stupid enough to take it.The land sits undeveloped now for the last 3 years.

Walter Hill · Answer

Hi Jon,

Keaton's suggestion is spot on.  My Dad is a semi truck driver and was parking somewhere at $150 per month.  We actually went on Craigs list and found a guy with a lot that was charging $100.  He had a 6 Rig Max because I assumed that covered his cost.

When we talk to the owner he said that everytime someone pulls out he runs the craigslist ad for less then a day and starts getting calls and usually finds someone with in the week.  I think it's definitely worth checking out.  It would certainly drive the value of the lot up while increasing your income while waiting to get a better offer.  It's a win win.

-Walt

Keaton Miller · Answer

4,000 won't make me happy. Receiving the 3,500 plus any potential gains over 4,000 may make me happy. Consider the "give" versus the "get". At the 4,000 option, I'm GIVING 4k, and GETTING the real estate back (to hopefully sell at a gain, without having the holding costs of the next several years). I'm not GETTING the 4k.

Also, I realize is somewhat a smaller dollar deal.. But as a 25 year old grad student, if I can manage to get an extra grand or so out of the deal, that will go a long way for me.

Loc R. · Answer

Have you considered countering your current offer with the $4000 that apparently will make you happy?

Keaton Miller · Answer

Jon,

Thanks for the suggestion. The current renter owns a semi truck and the city doesn't allow them to be parked on the streets. Street parking is free and ample in the area. Outside of another semi (which may be possible), I'm not sure how much more rental income it could provide.

K. Mitchell: thanks for the advice. Unfortunately I'm not sure I foresee any development there any time soon.

I really want to know what everyone thinks about selling it, but retaining an option at 4k. That basically means the prospective buyer wouldn't be able to sell it at a profit... I would still be able to profit off of any gains in the future. Any risks or thoughts on this?

K. Mitchell · Answer

I don't know if you can hold the property for a while (or if this makes sense for the particular property), but the game in my area is to show a better use for the property and then sell it at a steep premium. This usually entails hiring an engineer/architect to do studies and reviewing/getting zoning figured out. Then, before making any changes to the property, selling it as something else--such as land for a commercial structure, apartment, gas station, etc.--whatever is "the highest and best use for the property."

Jon Klaus · Answer

Can you find more customers like your current one, and park several trucks on it?  Get your income up, and then sell it based on what it produces?

What Would You Do? Sell or Hold?

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