The attached article describes a very real situation, click on the title above or cut and past http://www.dailywealth.com/archive/2009/Jul/2009_Jul_15.asp?printdoc=print into your browser.
Here's the sad but true reality I have shared with many clients, and others with whom I have consulted over the past several years . . .
Take a typical property built in your community over the past 5-10 years. Let's assume a 2400 sq ft home on a .25 acre lot
Now look at the cost of labor, materials, and permits to build that property.
Next add in the cost of having your money tied up while the house is built.
The total of these items is in most cases already (and in other cases/areas soon will be) MORE THAN the cost to buy the 5-10 yr old home on the .25 acre lot already built, sold and probably foreclosed on.
So if the cost to build the home is higher than what it could possibly sell for, and we haven't added anything in for acquiring the land (paying the taxes on it etc) what is the land worth?
let's look:
2400 sq ft home
materials @ $50/sq ft = $120,000
labor @ $50/sq ft = $120,000
permits = $5,000
interest on money = $5,000
Total to build the house = $250,000
3 year old finished home (in some markets never even lived in) on a lot can be bought for $200,000.
What is the lot worth?
if the difference between the 2 properties is one has a lot and sells for $200,000 and the other has no lot and sells for $250,000 and you set aside your emotions and actually apply logic the value of the lot, as you will quickly realize is NEGATIVE $50,000 - but wait, it's worse. If you own the lot and aren't building on it to sell it and make it go away, you simply have the privilege of dipping into your pocket to pay taxes, fees, etc for something with a negative value! Woo Hoo! Sign me up for a dozen!!! Idiots, if you think that's a great deal how about you just give me the money for the taxes, fees etc and I won't even make you take something with a negative value, how much further ahead would you be then? (of course I would be too!)
If this isn't yet the case in your market . . . it will be. Thinking of investing in REITS, TICS, Home Builders, Developers etc? Why not take your cash, set it on fire and heat your home with it, at least you'll get something for you money!
