Investing in Land

By Dave Tall, Managing Broker for Strait Realty in Sequim.

The Dungeness watershed. Snow caped mountains are more than beautiful to look at – they form basins that collect the water that sustains life.

Real estate markets are cyclical. The following stats are from Olympic Listing Service data and they are for basically Clallam County and do not include non Realtor® sales. Olympic Peninsula land made unprecedented  gains in appreciation between 2003 and 2005 after a ten-year long buyers market. During the nineties land only increased in value or appreciated about 2% - 4% per year. During 2001 in Clallam County, 518 land listings sold for 30 million dollars. 2005 saw 670 land listings sell for 81 million. This represents about a 270% gain in land sales volume in just four years! Although the number of sales rose 24%, most of this gain came from the rising land values. Real estate is cyclical however and like many other real estate markets around the country the along with the market as a whole here has collapsed in recent years.  2006 saw a 30% decline in sales volume from 2005 and the next year 2007 lost 22% from 2006, 08 lost 37% from 07 and finally the bottom fell out in 2009 with only 14.4 million in distress sales and a minimum of  35% depreciation of land values from the 05 highs. fewer people can perform the act of buying land. As of April 2010 Inventory levels have stabilized at about 950 lots on the market down from the high of 1100 in 2009. During the first quarter of 2010 25 land parcels/lots have sold for 1.9 million compared to the 1st quarter of 2009, 13 lots totaling 1.6 million. This is the first uptake in the market in years, it indicates that prices continue to drop but that the market may be making a turn and we may have bottomed out in 2009. 

 Buyers markets are for buyers and sellers markets are for sellers.  To be successful in investing in land buyers should attempt to “time the market” if possible. Buying when inventory is high and numbers of sales are down is buying in a buyers market and is preferred because sellers are more motivated and the people you need to help you locate, purchase and improve land are more available for consultation or hire. A market can turn into a sellers market very quickly when word gets around that people are making money buying and selling. As more buyers enter the market inventory starts to diminish and prices go up - basic supply and demand. Buying land during sellers markets is not enjoyable because often frustration levels rise along with the prices. The statistics shown below demonstrate the numbers of sales and sales volume on a large scale. Note that the median price did not go down with the rest of the market. Median prices can be affected by what buyers can afford as much as appreciation for example, interest rates and income levels could effect the median price. The stats show a substantial slide in the market during the previous three years from the all time highs of 2005. Also shown are first quarter stats for 2008, they show that compared to the first quarter of 2007 (not shown) the land market is showing slight increases in both volume and median prices. This indicates to me that now  the wheel has turned once again. 

Buy high and sell higher. The old wall street adage, buy low – sell high doesn’t apply to land in my opinion because contrasting the wild swings of a stock chart land rarely goes down in value. People like me who work in and around the real estate industry can be hurt by declining markets but a land owner holding just one or two lots for investment and or a future home site isn't necessarily affected by declining dollar volume or less units sold as long as appreciation doesn't become depreciation. Because most land in Clallam County has at least doubled in value since 2003 I believe that high rates of appreciation of value are over for a while. My clients are not buying now to “flip” the property next year for a profit. They buy now because there is great selection of properties to choose from that they would probably not have the opportunity to purchase during a sellers market. These properties are offered by motivated sellers usually willing to sell for less than they would have a couple of years ago. Also low interest rates make my clients cash investments unrewarding and borrowing money more attractive.

Here is the downside to investing in land. Land is one of the least liquid investments around and investing in it usually entails a long-term strategy. Once you’ve decided to sell, it can take years to find the buyer and close the deal depending on the market and your asking price. With the exception of properties in forest and agricultural tax classifications that are almost tax-free most land has property taxes and sometimes other assessments levied. These taxes pay for the state and local governmental infrastructure and services so some of the tax money benefits the area your land is located. Figure on paying about 1% of the assessed value of the property annually in addition to any homeowner’s dues, Local Improvement Districts (LID’s), etc.  Selling land is more costly to liquidate than other investments - about 10% to 13% of the selling price. Costs include the Brokers commissions, excise tax, title insurance and escrow fees. 

If you are interested in in investing in  land on the Olympic Peninsula contact me at davetall@olypen.com.com