UPDATE - this property sold in March 2021 for $600k. The painful loss on this property took place over 52 months. Adding up transaction costs, property taxes, demolition, design fees, and the time value of the funds involved is more than I can specifically detail but it is a huge number. Losing about $300k/52 months is about $6k per month as I speculate below. This property is a case study on how much more cautious we should be as Calgary real estate investors, and how new or aspiring market entrants can get harmed while being ‘helped’ by their realtor into a horrific land deal. I’m pretty sure a savvy builder snapped this lot up at a great price and will do well on building a new semi detached project on land in a good location. The transaction price is a number I would have been happy to pay back in 2016, and still would have today. The market is a powerful force but in real estate so often we see crazy outliers, deals that appear to make no sense, or prices so outlandish I assume, sometimes falsely, that the buyer is so sophisticated in his knowledge of future build value that the transaction price on the land is sensible. In this case, history has proven me to be correct. As investors we tend to think we are more stubborn or smarter than the market. Or we can wait out the market until a bad deal becomes profitable. How many of us could recover from this kind of demoralizing financial fiasco?. END
I wrote a post last October just around Halloween. It was a lengthy description of a slow moving financial debacle and another diatribe against realtors (who are truly terrible). Everything I mentioned there was correct but I was too generous on what I thought the land would sell for and of course the market has changed again. It is really sad to see now how much the losses are going to amount to on this one. It sold for $850k back in 2016 and is now dropped to $635k. That is a loss of $215k plus 3 years property tax ($15k) plus realtor fees when it does sell ($25k) and whatever the carrying cost was or opportunity cost. So $255k in loss of cash plus design fees they invested and intangibles. I’d still like to own this lot but I’m just not in a position to buy more land. I’ll talk to some investors but I don’t see them being super keen to acquire raw land today either. If I see this lot sell I will update the post and calculate the final tally of loss, as gruesome as it appears to be.
This is a debilitating loss. Only a deep pocketed buyer can purchase this for cash and that market is slow right now. I’d still love to own it but I’m not in a position to buy land now. 255000 of loss on this over 42 months is around $6000 a month to burn. Where will this end?