Higher And Better Use: Burying Dead People Or Residential Development?

Question

We have located an owner in town that has many lots we'd like to purchase in a gentrifying area of town.  The owner is in the funeral business and I am wondering if an offer from someone looking to develop housing on the properties would be more attractive than what they could make burying people.

The zoning of what they own appears to be mixed from what I can tell and the lots probably would only support small structures; like SFRs or maybe condos or duplexes.

Does anyone have any experience with the for-profit side of burying people and how to assess how much profit is in one piece of land for these folks?  I am assuming they have all of the expertise and items needed to convert this to burial ground if they needed to.

Bill Gulley · Answer

The movie, The Hunt for Red October, where at the end the American Ambassador is speaking to the Russian Ambassador and he says....."don't tell me you've lost another submarine"  and the Russian is trying to explain a difficult situation......

Well, That's what I thought of when I read the title to this thread, LOL, what is Bryan up to now?????  LOL

Bryan, you can't compete with dead people in a cemetary for a higher and (better) use, at least financially. Maybe with beach front property at the million dollar mark for a lot.

Depending on the cemetary, a plot about 4x8 considering walking space sells for around 5 to 10 k in rural areas and can be 20k depending on locations and favorable soils, water tables and amenities. Cemetaries are one of the most profitable uses for land there is, after all, people are just dying to get in! (Yes, I had to say that, sorry!)

Figure it out, about 32 square feet at 10K, I doubt your homes would be that expensive.

My sister's father-in-law had several funeral homes and cemetaries. And began the pre-paid burial business plans......what a guy!

But, don't give up. The reason they are so expensive is the funeral home or cemetary firm is taking on a very long term maintenance obligation, mowing and upkeep. Unfortunitly, many of these otfits go bust when they get filled up and abandon the place, where bankruptcy takes them out of the bonding required by states. There are issues, regulations, etc. but still, on a sq ft basis, it's very profitable.

They may take a quick profit if they have not spent much in getting the land qualified as a cemetary and might move on to another spot. If they have thier facility nearby, I doubt you'll touch it.

Only my ole buddy Bryan would come up with competing with the dead! LOL

Now, I'm gonna watch KC die on the field!

Bryan Hancock · Answer

Yeah...Bill edited his post after I submitted my response.

J Scott · Answer

Given Bill's numbers, not sure the square footage of the improvements is even meaningful.  He's talking about $12M per acre or something in that area.  Can you even come within 20% of that?

Bill Gulley · Answer

Bryan, I'm not seeing thier profiability having anything to do with thier cost of capital, the funeral business is cash heavy, not much in capital needed, the equipment isn't for an operating room, a herse, the limos, some chairs, a snactuary, some flower stands and pots, a small tent and a backhoe and you're in business! They buy unimproved land from some farmer! Then the expenses come in for soil samples, engineering and complaince with local governments (poitical). Done! Another friend owns a funeral home, I doubt he finances anything.

Taking part of it means you'd have a cemetary as a neighbor, while the neighbors would never complain some of the living may have issues. I'd suggest you keep riding while the sun shines....

Chuck Catchings · Answer

Bryan are the lots permitted for use as a cemetery? Cemeteries are like RE, location, location, location. At $310 per sq/ft from the numbers mentioned above that is almost $7M for just using 1/2 of an acre. I don't think your houses are going to bring that in especially in an gentrified area. I have a friend that went into the monument biz and just the profit margins on this over and above the cost of the plot are just crazy. The funeral biz is a racket if there ever was one. Too bad you can't rent the plots out but then again the eviction process would be a killer, LOL.

Bryan Hancock · Answer

Well the houses would be worth close to that, but not the land.  I'm wondering if they're rationing the land as part of their business model or if it would actually be more profitable for them to sell the land at a profit now instead of at a higher price point later.  If they're as profitable as you claim then their cost of equity capital is probably pretty high.

Any idea how much that revenue cited above yields in profits net of expenses?

Tiger M. · Answer

In Vegas you cannot pry dirt out of the funeral companies cold dead heads. Zoning is the issue for us and the good old boys club locked up their use many years ago. I have seen many groups make runs at them during the hot money days to no avail. The Catholic church just put in a crematorium in Nye County, 75 miles to the west of Vegas, because of Clark County zoning restrictions. I just had a referral for a group that wants to do a funeral home/cemetery and I had to pass. I can't comment on their profit per head. :-) Good luck.

Higher And Better Use: Burying Dead People Or Residential Development?

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