That is the question. We get around 4 to 8 calls a month from owners that are considering selling their lot. It is the same call every time, no they don’t HAVE to sell, they are fine to hold onto until prices have come back to a level that they are satisfied with etc…
Usually these owners purchased before the bust of 2008-09 and paid quite a premium on their lot. We then have to have a somewhat tough conversation. The good news is that we have now had 10 solid years of a decent to good real estate market. The bad news is that the lot you bought for $90K in 2006 is worth $50K in today’s market. Also, the average lot is sitting on the market for 18 to 24 months.
The vast majority of owners have decided to wait for the greener pastures where the buyers that are willing to pay what they paid. Eventually, we will get back there. Will it be next year? Next decade? In our lifetime? Who knows.
What we do know is that taxes, community dues, real estate sales commission (that can be between 6% and 10%), and potential community assessments are going to make that wait for Mr. and Mrs. Property Owner to get back what they paid, be a long ways down the road. Prices have comeback up since the bust. In 2010 a lot that sold for $90K was selling around $45K. In today’s market of 2020, that lot sells for around $50k. Ten years to get $5K, never mind the money lost in taxes, dues and assessments, is a long time to sit on the sidelines.
If you take the standard investment rule of 72, expecting a return of 8% would mean that your money would double in 9 years. So, were the people that sold their lots for half of what they paid for them back in 2010 better off than those that are still hold out for the market to heat up? The answer is most definitely yes. The owners that are holding and waiting are still paying tax and dues and are losing out on time which what you need when you are investing.
Do we think real estate is a good investment? We will cover that in a future post. Until then, think long and hard about what selling at a loss really means to your bottom line in the long run.