Buying Santa Rosa lots to build on after fire

24 Replies

Hello, I'm considering purchasing an empty lot in Coffey Park neighborhood of Santa Rosa that burned down in the Tubbs Fire. I have a contractor willing to do it for a low price since he is building three other houses in the same area.

My concern is, after I build this house in a year, will it be able to sell for a good price? The entire neighborhood burned down. Will buyers want to buy this house in a neighborhood of wasteland assuming not everyone will be rebuilding? 

Also, if many people are rebuilding now, they will likely finish around the same time as me. Will there be a flood of new houses on the Santa Rosa market early next year that drives down the price? It seems like a good opportunity but I'm a bit nervous because my profit margin may be slim. 

Originally posted by @Kristy F. :

Hello, I'm considering purchasing an empty lot in Coffey Park neighborhood of Santa Rosa that burned down in the Tubbs Fire. I have a contractor willing to do it for a low price since he is building three other houses in the same area.

My concern is, after I build this house in a year, will it be able to sell for a good price? The entire neighborhood burned down. Will buyers want to buy this house in a neighborhood of wasteland assuming not everyone will be rebuilding? 

Also, if many people are rebuilding now, they will likely finish around the same time as me. Will there be a flood of new houses on the Santa Rosa market early next year that drives down the price? It seems like a good opportunity but I'm a bit nervous because my profit margin may be slim. 

Hi  Kristy.  I have wondered the same exact things.  

Would love to hear @Brian Burke thoughts on this.

Originally posted by @Kristy F. :

Hello, I'm considering purchasing an empty lot in Coffey Park neighborhood of Santa Rosa that burned down in the Tubbs Fire. I have a contractor willing to do it for a low price since he is building three other houses in the same area.

My concern is, after I build this house in a year, will it be able to sell for a good price? The entire neighborhood burned down. Will buyers want to buy this house in a neighborhood of wasteland assuming not everyone will be rebuilding? 

Also, if many people are rebuilding now, they will likely finish around the same time as me. Will there be a flood of new houses on the Santa Rosa market early next year that drives down the price? It seems like a good opportunity but I'm a bit nervous because my profit margin may be slim. 

 Another thing to consider are you looking to purchase now or in a couple months. All the Coffey Park listing are way over priced right now. If you wait a month or so you should start to see the price of these lots go down. I would never pay close to 200k for a lot in coffee park. The number just don't add up. These are sellers prices, not realistic for making a profit. and not knowing the market once finished...

@Eric Moore Tx Eric, what would you say is a good price per sq ft in Coffey Park? Any other neighborhoods I should look at?

But, if you get together with the other investors/developers that are building in that area, you might all be able to set new , higher , selling prices than what was before. Maybe , if you all come up with some special features, that could maybe become the 'norm' in this subdivision, then you could set your own prices.

And as other builders buy lots and start building, approach them and rope them in. I'm sure they'd all love to be part of the higher sales price than what's been in the past. 

Just an idea. 

@Kristy F. and @Jenelle Harris , normally the first caution I’d bring up is not your exit but your execution risk.  Finding trade labor is going to get challenging and costs are going to be elevated. I question your contractor’s promise to do it at a low price—I’m hearing guys that I respect saying it’s too early to know where the cost will land.

As to your question about exit:  Word on the street is roughly 35% of the owners are not planning to rebuild. We lost just over 5,100 homes so that means that there will be about 1,800 homes built by new owners.  The rest will probably be reoccupied and not go on the market.  Some lots will likely be bought by people building homes for themselves, but probably not many. Let’s just say 100.  So that leaves roughly 1,700 spec homes. I’ll bet that 20% of those are built in year 1, 30-40% in year 2 and 30% in year 3 and the rest over the subsequent three years. 

This means two things. First, a lot of lots will come on the market over the next few months and most builders expect prices of lots to come down.  Second, homes will start to hit the market in a few months.  

Sonoma county has 4,000 to 5,500 home sales in a typical year. Last year was in the lower end of that range, not because of demand but because of supply. Right now we have only around 350 homes on the market and more than half of those are over $1 million. If we had the homes to sell I’d guess we’d be at the top end of the annual sales range. 

So can our market support an additional 1,700 homes over the next three years or so?  Without even so much as a blip, yes.  You’ll hardly even notice it. 

But be careful as you set price expectations. The ash hadn’t even stopped falling from the sky before the desperate buying commenced.  Stuff started trading way over earlier values with multiple offers immediately.  This will begin to normalize and prices will likely stop rising for a while, or even perhaps drop back to pre-fire levels now that the “panic buying” starts to wane. 

I know some of the buyers of lots and there are very sophisticated buyers in the mix that have decades of history developing here and they have extensive relationships. They’ll get priority over the one-off builders from the subcontractors.  So you’ll compete with them for trades and you’ll compete with them for lots and you’ll compete with them for sales. You can do it, just don’t underestimate the challenges. 

Hi Kristy F., I am a local realtor and have a few clients who lost their homes in the fires and have been considering purchasing a Coffey park lot and building. After doing a bit of research and talking with some colleagues about this, in all honestly I don't think it's the best decision at this time. The numbers just don't add up. A local reputable builder who is doing new homes in the area is projecting a cost of $28/sqft. Assuming you build a 1,500 sq foot house that building cost alone is $420,000. Then factor in $100,000 for fees, permits and connecting utilities. Add in the cost of the lot which are going for $130,000-$150,000, you are already at $650,000. This doesn't include landscaping costs. Another thing to keep in mind is Santa Rosa is facing a shortage of construction materials and labor so it's very likely you will be spending over $700,000 to build a new home in Coffey park. This is why I say the numbers don't add up. Bottom line, there's a ton of risk involved and you'll need deep pockets to deal with any issues to complete construction. Even if you built it for $700,000 it's likely the resale value won't be worth $700,00 for Coffey park at the time of completion, eventually they value should catch up, but that probably won't happen for years down the road. I know you have a contractor who is ready to do the work at a lesser price but how low will he go to make it worth it for it after all is said and done?

Updated 6 months ago

$100,000 for permitting is a very high estimate

@Chelsie Runnings I agree with you that the numbers don't add up, which is why lot prices are likely to come down somewhat.  But, your calculations are off a bit...the permits are likely to be far less than $100K.  All you are paying for is the permit itself.  The impact fees are only charged on added square footage, so if you build back the same (or smaller) house there are no fire, school, and area impact fees.  And no utility connection costs, that was paid when the house was built, so all you'd be paying now is perhaps for a new water meter (the device itself, not the connection fee part).  So I'd take $90K off of your price estimate. give or take.  For a non-fire lot that never had a home on it before, $100K is about right for a building permit in Santa Rosa.  And people wonder why our housing prices are so high...

I think $280 a foot is probably light for a Fountaingrove home but probably heavy for a Coffey Park home.  I'll bet that those come in quite a bit less.  If anybody is paying $280 for those homes it's just because the insurance company is paying for it and no one is paying attention to the bill.

But that said, there is still not much, if any, margin.  That's why I'm staying out of it too.  A partner of mine is going all-out, but then again, he built a lot of those homes to begin with.

@Brian Burke thank you for input. I have not personally dealt with anything having to do with Coffey Park, however I just asked some lenders and other realtors who have been working with clients what their experience has been, that is where I got that Permits pricing from. I had thought that number was high but had not done enough research to confirm.  I know they had waived fees for a short minute and then decided to reverse that decision, but was not sure what the pricing was after that. I know in Lake County after we lost our homes in the Valley fire in 2015, due to the extensive damage under ground from how hot the fire burned it was basically starting over from scratch, septics, Water etc. the fees were enough to stop all 7 of my family members from re-building. 

Gallaher Homes who will be building new homes in Coffey Park, is projecting a cost of $280/sqft, however I have yet to see if that is actually what the price is, again this is what I have gathered from talking with those who have been dealing with this first hand. 

I am curious to see how your partner will fair in the end. Again, thank you for your input. I appreciate your take on it and sharing your knowledge on this. 

@Brian Burke   if there is an existing home would you not only pay for building permit and plan check fee... since it already has laterals and they were hooked up to the systems.. ???  I know in our area that would be the case.

I see labor  ... what about fountain grove  ???   I was thinking about poking around Silverado .. limited lot supply there aboutr 125 homes burnt down.. and like you said probably 100 rebuild and stay so maybe 25 new builds ??

@Jay Hinrichs , yes, exactly...if there was a house there before you don't have to pay the water and sewer connection fees again.  But if your water meter melted you might have to buy a new meter.  Not sure on that one.  The big question is how much of the undergrounds are still intact?  No one knows yet, I don't think.

Fountaingrove lots are popping up on the market, those will be more expensive to build because they are high-end homes and a lot of those lots are sloping and required engineered foundations.  The flat lots will be easier but still a higher-level finish. 

The big question is who is going to do all of this construction, our local government chased out all of the builders that the great financial collapse didn't already squash.  Some of the original home builders are coming out of retirement to help, but they won't be the ones swinging the hammers...I don't know where they'll all come from.  I guess our hotels and apartments will stay full for a while from out of towners pitching in.  We'll need the help, that's for sure!

@Brian Burke   some of the Silverado lots are steep as a cow's face so those will be big bucks to replace.. 

there are some other pretty spectacular lots if they come up homes will be in the 3 mil range so if one can snag a 500 to 700k lot might work.. 

we went into Rohnert park with our 4 acres there next to the casino.. figuring housing crisis and maybe we can get fast track.. LOL got laughed out of there .. but its moving slowly forward.. well its been 24 years I guess I can hold on a few more.  :)  got to love Sonoma NO GROWTH county. 

@Chelsie Runnings   septic well etc in Lake county is completely different.. but some good came out that fire.. one of the OLD platted development  up hwy 175 right out of Middle town that burned to the ground they are now running sewer into it and all those lots that would not perc because they are only 5 to 10k sq ft will not become buildable. granted with a sewer bond assessement but still.. it will actually increase housing.. in reading the local paper though they are giving Harbin a hard time

@Jay Hinrichs what area of Hwy 175 are you referring to? I graduated from Middletown, Grew up on Cobb Mountain. I am interested on your take of the fire there increasing the housing. My Family moved out to Kelseyville instead of re-building, I don't get up there much more than a monthly visit these days but always interested in what's happening there. I did have a listing over the summer and was actually very surprised by the interested there was for it. @Brian Burke I'm planning to attend next months Sonoma County Investor Meetup, I am expecting it to be very informative with the Director of the Permits and Resource dept. as the guest speaker. 

@Chelsie Runnings   whispering springs subdivision.. Voris the long time county supervisor lived.

I lived in Lake port most of the 80s and my dad was a land developer there in the 60s to 80s mainly the north side of the lake.. I have a brother that lives on cobb well actually the northside .  fond memories

This post has been removed.

@Chelsie Runnings ,@Brian Burke

As a building contractor, I am curious to know if there are any upcoming events in the area (Meetup etc.) to connect with local owners who are looking to rebuild their homes lost in the fires.. I'm a GC experienced with remodels and new construction.  Any input is appreciated.

Thanks

Zab

@Chelsie Runnings Thanks for the response. I will definitely look into it. I think it's a good start especially since the speaker is from the building dept. 

@Brian Burke


I was recently pitched a deal by a relatively well-know real estate person to buy 10s of lots in Coffey Park, Fountains Grove, and Hidden Valley. While I like the area from a demographic and economic perspective, I, like you, had thought about the cost of materials and potential for labor shortages. In other words staying on time and on budget may be a challenge and could wreck the deal, although the towns are expediting approvals to get that juicy property tax revenue collecting again. However, this person alleges to have a team in place that is ready to do the work and could achieve some efficiencies and economies of scale given several units will be worked on at one time.  If that were truly the case, would it be worth a second look at the deal? Or is Santa Rosa just not a good place right now for real estate investment?  In the pitch deck, I'm seeing $262 to $275 a square foot for hard and soft costs across the above locations. Planned hold is 5 years. Would welcome your thoughts, and that of others in that neck of the woods. Thanks, Craig N.

@Brian Burke   your being paged !!!

@Craig N. are you talking Hidden Valley in Lake Co.. ??? or is there one there in STR as well.

Now I am not an expert there but I have a property a little south of the fire area that has taken me about 22 years to get into the city and zoned.. and I thought hey with the fire they are going to need units quick for basic housing. 

WRONG WRONG WRONG  same ole Sonoma county politics .. nothing gets fast tracked ,,,though lots of record should be easier.. and a five year hold is interesting.. although I think values will be at a peak.. given lot values and building costs.. not sure how much upside they would have.. Brian probably knows or has a better crystal ball on it.. but I would think if there was significant upside Mr. Burke would have created a huge investment offering for that very thing.  I could be wrong though of course :)

@Jay Hinrichs

There is apparently a Hidden Valley in Santa Rosa (I'm on east coast no no idea). This from Zillow:

"Highly desirable corner lot in Hidden Valley Estates. A great opportunity to own land in one of Santa Rosa's most sought after neighborhoods! Prior to fires was a 1,840 sf home with 3 bedrooms and 3 bathrooms. Lot has been cleared and is awaiting certification."

@Jay Hinrichs you are right about being wrong--anti-growth policies and building department obstacles will never change in this area despite all of the public talk about how they are going to do something.  I could tell you so many first-hand stories it would make you sick to your stomach.  Which is exactly why I do so little investing locally.

I have absolutely no desire to build anything here, not just because of the regulatory climate but also because of what I think will be a challenge finding trade labor.  Rather than running successful investment funds I'd spend every waking hour dealing with city bureaucrats and searching for plumbers and framers, etc.

That said, I have been approached by two of the most successful production builders in the county (the folks that built a lot of these homes to begin with) to provide backing for them as they set out to acquire lots and build homes.  I'm seriously considering doing it.  The only reason why is they are the best--and dealing with those headaches is on their plate not mine and they'll knock it out of the park.  Why?  Because they have the trade relationships already and you can bet dollars to doughnuts that the trades will work for them before they take a job from any random investor trying to build one or just a few homes.

So, @Craig N. if you are considering investing in a deal where a solid group with a track record is running the show, you might do fine.  $262 to $275/SF seems a bit high for the costs, but no one truly knows what the costs will be yet. 

I'm also not convinced about the 5-year hold.  Our model would be to build and sell right away.  I don't see a big advantage to holding.  But I do see disadvantages.  First and foremost, values are elevated right now because of panic-buying and desperation.  I'd expect both of those factors to be absent from the market in five years, which could mean that prices plateau very soon and hold, or a case could even be made that values fall slightly.  Second disadvantage to holding is that the brand-new house that you were going to sell is now a used house.  This isn't as severe as what happens to the value of your brand-new car when you drive it off the lot, but nevertheless it still loses the new-home smell, so to speak.  But I think that providing financial backing to the right group could be a really good investment.  The trick is just making sure it's the right group, because really the only way I see something like this going wrong is to have the wrong captain at the helm.  But that doesn't mean it's easy, the right captains are few and far between.

@Jay Hinrichs , @Craig N. is right, there is a Hidden Valley in Santa Rosa.  The part he's referring to is the area on and off Parker Hill Road between Chanate and Stagecoach.  A good portion of that neighborhood was destroyed.

I correct myself, the hold period is 1 to 1.25 years, not 5 years. My apologies.

What about buying to build and live in Santa Rosa? Assuming I have plenty of time to buy and hold and eventually move in to retire there, will the numbers still add up? Would you recommend to buy a lot in Benzene water contamination area to bring the cost down?

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