Land investment

[cobafdek]

I don't like uncertainty.

 

that area has turned into a sh*thole.

 

I'll hijack these words out of context and turn them on their heads just for fun and edification.  These words could be used to describe my chosen style of value investing.  I've long looked for an alternative to the tired, old, hackneyed "cigar-butt" metaphor.  Something more colorful and Mungerian - recall his raisins/turds quip.  Admittedly, the Antelope Valley may be the wrong hunting ground, but uncertainty and terrible looking sectors are often reasons for unreasonable discounts.  Let's hear it for mean-reverting shitholes!

 

It was inadvertent on your part, but thanks for the suggestion, picasso!

 

 

[Picasso]

Wouldn't surprise me if I knew the person on the other side of this transaction.  I was pitched a similar location in which the seller has been holding for something like 20-30 years.  The husband had the bright idea of buying the property but recently passed and the wife was sick of holding onto it. 

 

I know the area well.  I used to walk up and down those streets from a local community college in my high school days to get to In-N-Out.  It was a long walk but worth it.  My dad used to drive 100+ on the 14 freeway and get off on Ave H or I to get away from the cops and hide in the fields or under bridges.  On Avenue I a couple miles down I had a couple of my dear dogs put to sleep at the shelter.

 

The area is now predominantly black whereas it used to be mostly aerospace hard working blue collar types.  Not to sound racist or anything, but that area has turned into a sh*thole.  I always get pitched different parcels of land around those parts, or better yet on the I-15 near Barstow, as if the north end of Lancaster wasn't enough of a long shot.  I swear, northern LA county land has the most annoying bag holders with the best stories.  Future bullet trains, freeways, international airports, new aerospace, etc etc.  They even started up with the whole, buy this land because some rich guy or gal in China can buy it from you to create jobs under some section of the law to get citizenship. 

 

Glenn Gary has nothing on what I've heard from those bagholders.

 

Thanks Picasso, this is great info, and that's what I was afraid of.

 

In general, how does one approach land investment? or is it just a too hard pile (i.e., not in my circle of competence)?

 

Investing in land is like starting a thread to identify the next Wal-Mart or MMM.  It's a lot easier to identify the investment once some critical parts of the investment are visible and give up some of the upside than sacrifice sitting on investments with multi-decade yield curves. 

 

Investors who make a lot on land are lucky or don't tell you about their other losers. 

 

I met with this guy in 2010 who runs an "investment firm" that takes inventory of land and hire salesmen to unload it.  This is his site and properties:

 

http://www.california-land.com/land.shtml

 

He has been trying to sell that one by Avenue H since 2010 at the same price.  Imagine just putting that money in a decent money managers hand instead?  You'd have more than doubled by now.  The land is a freaking zero coupon bond with no definite maturity value that erodes as you to hold it in taxes and opportunity cost.  If that guy can't sell it with his sales force, how are you supposed to realize the value on it unless you hit every part of the "thesis?"

 

The definition of the too hard bucket if you ask me. 

[Picasso]

Actually if you go on that guys homepage, he gives you a nice highlight of the pitch.  He even starts it off by saying he's going to be total frank and not give you a sales talk.  So we can be absolutely sure it isn't a sale pitch now, which is great.

 

There must ba a sarcasm tag around here somewhere....

 

This has all the elements of an emotionally driven sales pitch into a bad investment.  Guy says he isn't going to sell you, uses vagueries such as selling in a few years or including reputable names like Wal-Mart, words like getting rich, and clips of other developments which are not happening but bound to happen!  I don't know how these people sleep at night.  A lot of people fall for that stuff.

[Picasso]

Looks like your parcel might have better prospects than what mine has turned out to have so far.  For one thing, there's an In-and-Out Burger about a mile east!

 

My parents retired and moved to Southern California about 25 years ago.  On one of my annual Christmas visits, they took me out to the Antelope Valley (Palmdale/Lancaster) and asked "Wanna buy some land?"  I said, "Sure, why not?"  They, and other friends from Ohio who moved out here bought small 3-20 acre parcels scattered nearby.  Fortunately, none of these purchases were a major portion of their retirement funds.  They said, "You never know with land.  Someday, maybe . . . .  Just hang on to it."

 

I bought about 2.5 acres for about $12,000.  The real estate agent touted the nearby country club and small airport, and coming development.  I nodded, "Uh, huh.  I see . . ."

 

https://maps.google.com/maps?biw=1280&bih=932&q=crystalaire+ca&bav=on.2,or.r_qf.&bvm=bv.82001339,d.eXY&um=1&ie=UTF-8&sa=X&ei=5kmcVK2RNImrgwTEnYOIAg&ved=0CAYQ_AUoAQ&output=classic&dg=brw

 

Twenty years on, these have been the economic benefits:

 

1. $386 annual property tax bill, on current assessed value of $24,000.

 

2. Annual weed abatement notices ("The Board of Supervisors of the County of Los Angeles passes or will pass a resolution declaring noxious or dangerous vegetation or rubbish and refuse were growing or occurring upon or in front of property on certain streets in said city or unincorporated area . . . and that they constitute a public nuisance which must be abated by the removal of said noxious or dangerous vegetation, rubbish, and refuse.")  I've received these for years, but so far nothing has happened.  Maybe after I post this.

 

3. In 2008, my dad received a notice from the Code Enforcement Officer of the city of Lancaster.  Couches, mattresses, foam, plastic toys were dumped on his property.  I wrote a check for $500 made out to 1-800-GOTJUNK.

 

Future prospects?  I don't have a clue.  Every year, I get 2 or 3 solicitations from no-name RE brokers looking to buy out land for cash.  And there are occasional stories in the LA Times about energy companies paying a lot to buy land on which to place solar panel farms.  That was several years ago.  Your's being closer to the city has better prospects, but of course at a steeper price/acre than mine.

 

At the time, I was reading a lot of Martin Whitman's letters, and Third Avenue bought the 270,000 acres of Tejon Ranch (nearby up the Grapevine) owned by Times Mirror (former owners of the LA Times).  I've owned TRC and JOE for about 15 years now.  Ten years ago, driving on the Interstate 5, it was nice to see the huge IKEA distribution center at the Tejon Industrial Complex, as well as that nice truck stop with amenities.  But it took another 10 years for the great outlet mall which just opened.  Who knows when the Tejon Mountain Resort and their planned community Centenniel will take fruition.  Being a passive investor with top-notch RE development companies holding land at understated NAV has turned out to be tough slogging, and it is reasonable to call them land traps thus far.

 

Funny, I am a member of that country club.  I have family close to there and will take my dad to go golfing when I visit.

 

One of my best friends in high school used to live in Llano and we would always joke because it was literally the middle of nowhere.  That is saying a lot since my town had a population less than 1500 residents.

 

It is also very common for dumping to take place north of highway 138.  Among other shady things....

 

I looked at the returns for residential properties in that area over the past few decades and it has been terrible.  About 4-5% a year after expenses or something like that even if you were able to rent it out 90% of the time.  It reminded me of some research done by BCA where it listed long-term real estate returns around 2% and land as flat to negative.  Stretching for value out there has been a graveyard for investors capital.  I guess the real estate mantra of location, location, location (as vague as it is) is pretty accurate.

[cobafdek]

Funny, I am a member of that country club.  I have family close to there and will take my dad to go golfing when I visit.

 

Thanks for providing your local color commentary.  Are you a member of other country clubs?  How would you compare Crystallaire with others that you know?  Are the members primarily local gentry, or does it get millionaire-retiree types for weekend getaways from LA and Bakersfield?

[Picasso]

Funny, I am a member of that country club.  I have family close to there and will take my dad to go golfing when I visit.

 

Thanks for providing your local color commentary.  Are you a member of other country clubs?  How would you compare Crystallaire with others that you know?  Are the members primarily local gentry, or does it get millionaire-retiree types for weekend getaways from LA and Bakersfield?

 

Yes I am recently a member of Valencia CC as well.  I frequent different ones depending on clients and if time permits.

 

There are mostly locals at Crystalaire.  Pretty wealthy people in Juniper Hills or Anaverde Hills go there.  Not really a lot of weekend getaway types.  To be honest membership is weak right now which is true of most country clubs.  I have had some offers to purchase memberships at 20% of face value at some of the better country clubs in LA county. 

 

I like going to Crystalaire because I can just be myself and enjoy a less strict dress code.  The course isn't very well kept these days.  Plus I am under 30 so these clubs have pretty good deals for juniors.