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Thursday, October 02, 2008

Land Selling for Pennies on the Dollar

by Calculated Risk on 10/02/2008 11:08:00 PM

From the WSJ: Developer Sells Land Dirt Cheap To Reap Tax Benefits

Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs ... for $7.8 million, according to county records. William Shopoff, a land investor ... estimates Horton paid about $110 million for the land before [spending on improvements].

Horton also recently sold a four-acre parcel in Escondido, near San Diego, for $4.4 million, about 25% of what it paid for the property in 2005, according to the county assessor.
The reason Horton is selling now - for pennies on the dollar - is to obtain a tax refund by applying the losses to prior profits. Earlier this year I reported on a deal at 15 cents on the dollar for the same reason.

This is the common patten in a housing bust - typically land prices decline much more than house prices (on a percentage basis) - because houses can be rented, whereas land has to be held for years before realizing a return.