Real Estate Values Update – Third, The Golden Turd

As I mentioned in the first two posts of this little mini-series, it’s been more than a year since I updated the values of any of our real estate holdings and they have shifted non-trivially since then.  In elementary playground fashion, I have decided to present them in order as “investment successes” according to the elementary school playground song:

“First – the worst! Second – the best! And third is the golden turd!”

Luckily, this order also happens to be the order in which we bought the properties, so if you prefer not to think about what a golden turd actually is, you can just think of the order as “chronological”. =)

imgp0142lighthouseam

Lighthouses at Burning Man-pretty, but not the type of Real Estate we bought!

Catch up on earlier posts if you missed them:

And I’m going to keep saying this…

Something to keep in mind when looking at these: We bought properties during the depths of the foreclosure crisis in one of the worst-hit metro areas in the entire country. As a result we’ve seen some pretty significant market value gains since our purchases and don’t expect these increases to be representative of what we’ll encounter in the future, either here or elsewhere.

So lastly, we have…

Third, the Golden Turd: Our Investment Lot:

We bought this lot in late 2011 for $84K. It’s a vacant lot on a canal that is (as we’ve been told by the neighbors) about 10 minutes by boat to open water. As boat commutes go, that’s pretty darned short. The lot has a concrete seawall and a small dock, but no boat lift. Kindof mid-range when you think of “empty lot amenities”. We bought this land to be a different sort of investment than our duplex. While we expected the duplex to throw off rent on a nice, regular basis, we didn’t expect the value to pop up so quickly the way it has. It was this lot that we bought with the idea of appreciation in mind – we bought it to hold with the idea that it would require much less of our time and effort than the duplex would on an ongoing basis.

After about 4 years without much in the way of land sales in this neighborhood to use as a comparison, there have been a couple in the last year that suggest the value we had been carrying this asset on our books for ($80K) is quite a bit lower than what we could get on the open market.

An awkwardly shaped double lot without any seawall sold a little more than a year ago for $310K. Another, with more of a standard shape, a seawall, and a boat lift just sold for $350K. Dividing by two (since these were both double lots) gives us a range of $155K – $175K. Best guess, $160K is probably pretty close to what our lot would sell for today given that it’s a single lot, but has a seawall and small dock (no boat lift).

  • Purchase Price: $84K
  • Best Guess Current Value: $160K
  • Change From Purchase Price: $76K, 90.5%, a CAGR of ~14.5% in the 4 years, 9 months that we’ve owned it.

Over this same period the total S&P return (dividends reinvested) has been 69.14%, a CAGR of 12.15%.

Detracting a bit from this return is the fact that we’ve had non-trivial carrying costs each year. Between the property taxes, a couple of maintenance items, and a monthly bill that we have to pay for the privilege of having water and sewer pipes flow underneath this land, holding this land costs us ~$1,600 per year. Not huge, but it does feel a bit like a turd to have to pay those bills and write that property tax check every year. Luckily, our hopes that this would be a good investment eventually look like they’re finally coming to fruition, so the turd is (hopefully) golden after all.

We’re not quite ready to sell this lot, but it’s good to see land moving and houses being built filling in some of the other empty lots that remain in the neighborhood since we do think selling it is something in our medium-term future.

Final Thoughts On These Updates

I’ve now said it three times in this short series, but every time I look at these numbers I’m constantly reminding myself that we bought these properties in the depths of “The Great Recession” in one of the worst-hit* counties in the entire country. That means a few things for us:

  1. We have been anchored with some ridiculously cheap prices when it comes to real estate. Even when it came time for us to buy our lot, we were looking at duplexes with asking prices of $80K and thinking those prices were insanely high and we couldn’t possibly pay them compared to the $50K we had gotten our duplex for the year before.
  2. We definitely don’t expect returns nearing or above stock market performance to continue on these properties indefinitely.
  3. We have no expectations of replicating these investments anytime in the future. We’ll always try to follow Warren Buffett’s famous adage, “Be fearful when others are greedy, and greedy when others are fearful.” But being lucky** enough to be in the “right place at the right time”, have 1.5 good jobs*** between us, AND then also have parents (/in-laws) able and willing to loan us $50K (we did pay 5% interest and paid off the loan early, but still…) at a time when we had run low on cash reserves and getting more traditional financing would have probably been impossible for us… well, all of that adds up to a sense that we may never again replicate this investment performance ever in our lives.

 

* Not an exaggeration, I swear.

** “Lucky” and “right place at the right time” feel like strange ways to describe what was a VERY rough situation for a lot of people around here then. But I’m not quite sure of another more accurate way to describe it…

*** My job was good and stable throughout the recession; Mr PoP had a couple of years of non/minimal employment before getting into a good sales job at a good company. (This has more info on Mr PoP’s job transition…)

 

So dear readers-how long until we see another collapse of the world economy that results in super low asset prices?

6 comments to Real Estate Values Update – Third, The Golden Turd

  • Could be November, depending on how this election goes. I’m serious. World markets will react worse than brexit if trump surprises them and wins. And, I suspect the reality will be worse than the initial shock. Then you’ll get sea levels rising and possibly lose your lot entirely…
    Nicoleandmaggie recently posted..Ask the grumpies: PF blogs?My Profile

    • mrplantingourpennies

      Counter argument! If Trump wins, the rich (us) will get richer (no doubt the Republicans will keep capital gains taxes lower while gutting social safety nets to increase the number of working poor to decrease the price of labor) and the crashing markets will cause a flight of capital to safe assets like FL real estate, thus bumping the value of our lot even further! While the sea will continue to rise when Trump outlaws solar energy and increases subsidies to coal power, the Trump supporters who eventually buy our lot will likely be old enough not to care if the entire thing is underwater in 20 years anyhow!

    • mrplantingourpennies

      Seriously though-yes, we need to consider sea level rise as a risk for this lot. Might be worth a post in the future. I looked a the issue when we first bought it and concluded that it might actually help us.

  • I honestly can’t tell if housing is actually going to crash or just stall out on growth as interest rates slowly rise (which I feel like would be the worst of all possible worlds for my cohort). Probably depends on location. Like n+m I can see property values in FL getting knocked down due to climate change, but that’s not exactly something that can be easily recovered from.

  • We are considering selling our rental properties, just to be free of the hassle. There’s a return, but they’re too comparable to the “no-hassle” paper investments to really justify their existence in our portfolio. At least that’s my take. Mrs. Done by Forty feels differently. :)

    Glad to hear about the appreciation. I’d be tempted to take the money and run…

  • Peter

    Nicole

    As a Brit, I’m intrigued at what you see from over the pond as the current imnpact of the Brexit vote.

    Regards

    Peter

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