The Good, the Bad, and the Ugly of Property Lot Selection

The Bad and the Ugly Lots –

Stay away from irregular lots with odd configurations unless you can’t help yourself. Other red flags include lots overcome by or in proximity to utility poles, cable boxes, or oddly placed drain-offs near the front of the house. This also includes retention ponds, unless they’re nicely landscaped. In terms of retention ponds, prospective homeowner parents don’t like them because of the danger they pose for their small kids.

I have a personal pet peeve with lots that are placed at a T-intersection. In fact, my first deal was at a T-intersection in a KB Home community in Moreno Valley, California. I was so distressed with the thought of incoming droning headlights that would hit my living room on a nightly basis, that I canceled escrow five months later. Smart move in retrospect, considering the home appreciated 20 percent in the interim! But in all fairness, this first purchase was meant to be an actual primary home for myself, and the thought of having a home with that type of defect just didn’t make sense to close. The positive consequences of this mishap were that the rapid appreciation on this KB Home deal inspired me to form a business model predicated upon new tract home investing. Plus, it didn’t hurt that I discovered soon after the cancellation that me and Mo-Val (a.k.a. Moreno Valley) shared the same birth date, in that the town was incorporated exactly twenty years after I was born. This was destiny in the making.

The Good Lots –

Homes with lot views, view fences, and/or natural landscaping settings should be sought, if the premium being asked by the developer does not raise the basic price of the home substantially. Remember, some builders play on this consumer vulnerability, in that not buying a premium lot will somehow negatively affect the resell value of your home. As such, the builder will jack up the price for premium lots based upon the insecurity of the buyer. In this instance, the buyer is made to feel that passing upon the “opportunity” to purchase that “special lot” will somehow make the consumer feel as if he or she is missing on a chance to buy a great piece of real estate. The psychology that plays in the consumer’s mind goes something like this: “What’s the damage if I pay an extra $20,000 to $60,000 for the house? For that amount, for the upgrades amortized over thirty years, pencils out to only an extra $200 a month. And hey, who knows, maybe it might pay off.” In the consumer’s mind, and given the delicate nature of egos and “keeping up the with Joneses” mind-set, that line of logic may not seem too damning of a financial sacrifice. Make no mistake about it, design center negotiations can be a high-pressured sales events. God forbid you happen to have your spouse with you during one of these events. Word of advice, leave the spouse at home and don’t forget to bring your thinking-cap. The last thing you want to do is commit financial adultery out the gate. Financial prudence and keeping an eye on the ball is the name of the game. Focalization.

To recap, and two quick rules to remember in connection with lot selection are as follows:

Rule 1. In new tract home investing, whenever possible, take out as many “maybes” out of the equation as possible. Too many “maybes” in the real estate investment equation can result in not too many dollars when resell mode hits, which is ideally the day after you close escrow.

Rule 2. If you do, however, desire to buy a home that has a lot premium associated with it, then perhaps try to stay away from that lot and understand it for what it is, and that it’s a builder markup that is meant to hoard all the gravy for the builder-gravy that should be meant for you. As for what constitutes a lot premium in price and form, they’re typically valued three to ten times higher then most other lot premiums on the same development, and can consist of golf views, hilltop locations, corner lots, green belts, ocean bluff vistas, extended private driveways, or just an overall “larger footprint” in terms of square-footage size.

In addition to the big daddy of them all, that being lot selection/lot size as the most important criterion in choosing a property, there are at least six other property criterion that should be considered and strongly evaluated when engaged in the imperfect science of property selection.