Property with Negative Value

[Couch Potato]

If the owner is the cause of environmental contamination, the costs of cleanup and other associated liabilities are attached to the owner rather than the property. Federal laws and court rulings make it so that a person cannot avoid the costs of contamination they caused simply by selling the property. Now that does not mean such people willingly cleanup all damage without the cost of taking them to court, but it does allow for an "innocent owner" to exist.

 

[prasercat]

If the owner is the cause of environmental contamination, the costs of cleanup and other associated liabilities are attached to the owner rather than the property. Federal laws and court rulings make it so that a person cannot avoid the costs of contamination they caused simply by selling the property. Now that does not mean such people willingly cleanup all damage without the cost of taking them to court, but it does allow for an "innocent owner" to exist.

So when BP caused their environmental contamination in the gulf, whom does the costs get attached to, that will probably have ramifications for the next 20 years? It is the directors, the company or is it everyone else but the directors and the company?

I have to disagree with your tag-line, although I think I get your meaning. Three of the most monumental investments I ever made were all homes, one a duplex. While it is true, I purchased them primarily as a place to live. My belief is not that I'm some sort of financial guru, although I do have some sense. I attribute the success to putting "location" in the highest priority, and will sacrifice commuting convenience and home size to get it. I don't want to live anywhere, if it isn't "special" or "unique" or with, what appraisers term, inherent scarcity, I'm just not interested

That particular personal bias paid-off 100% of the time and one time I made 220k tax free capital gain (more than doubled in value) on a 8k investment with a holding period of 4 years and rented out a room while I lived there. It's hard not to imagine a home can be an amazing investment.

 

[JSmith43]

There are places in Nevada that have craters from underground nuclear tests. They aren't for sale but how much would a lot with crater be worth?

Skate board park.

 

[Couch Potato]

So when BP caused their environmental contamination in the gulf, whom does the costs get attached to, that will probably have ramifications for the next 20 years? It is the directors, the company or is it everyone else but the directors and the company?

I have to disagree with your tag-line, although I think I get your meaning. Three of the most monumental investments I ever made were all homes, one a duplex. While it is true, I purchased them primarily as a place to live. My belief is not that I'm some sort of financial guru, although I do have some sense. I attribute the success to putting "location" in the highest priority, and will sacrifice commuting convenience and home size to get it. I don't want to live anywhere, if it isn't "special" or "unique" or with, what appraisers term, inherent scarcity, I'm just not interested

That particular personal bias paid-off 100% of the time and one time I made 220k tax free capital gain (more than doubled in value) on a 8k investment with a holding period of 4 years and rented out a room while I lived there. It's hard not to imagine a home can be an amazing investment.

Yes, BP will be making payments to cleanup for many years to come.

On the tag-line, it is certainly possible to make a profit on a house used as a personal residence, but in most of the country for most time periods house prices merely rise at the rate of inflation. Sometimes fundamental economic changes cause divergence in either direction, but not often. Certainly one can invest in houses by buying them as a residence for other people, but rent collect not change in value should be the focus for evaluating the purchase.

Sacrificing home size means buying a house that does not meet your needs. Yes, that can help get into an area where economics are changing, but quality of life is a high price to pay for cash. Yes, commenting long distances can help get into an area of economic change, but quantity of life is the highest price to pay for cash. Using your home as an investment means you are at work 24x7. The joy of life is lost when your home is just another job.

 

[JSmith43]

Buying a house is an investment that may go up, down or sideways in value. Personal value in occupying the home and/or value of net rental income plus PV residual, as the case may be, as well as alternative uses of money & credit capacity (opportunity cost) should be factored into the decision to purchase real estate.

Let's see if you can get that into a signature line.

 

[The Warrior Monk]

If the owner is the cause of environmental contamination, the costs of cleanup and other associated liabilities are attached to the owner rather than the property.

It's not that simple, based on what I've seen happen to some Superfund sites in the general market area I work. The assignment of liability is a mess, and can take years to assign...in the meantime, your stuck with a contaminated property with limited or no use. Then it can take years to collect the funds to remediate, if the prior owner hasn't already gone bankrupt. Then one has to deal with the headache of government involvement.

As far as the value of these properties go, they couldn't even be given away...and they tried. I don't see how a property that can't be given away can have a positive, or even zero, market value.

 

[PropertyEconomics]

It's not that simple, based on what I've seen happen to some Superfund sites in the general market area I work. The assignment of liability is a mess, and can take years to assign...in the meantime, your stuck with a contaminated property with limited or no use. Then it can take years to collect the funds to remediate, if the prior owner hasn't already gone bankrupt. Then one has to deal with the headache of government involvement.

As far as the value of these properties go, they couldn't even be given away...and they tried. I don't see how a property that can't be given away can have a positive, or even zero, market value.

David what you describe is a classic property has has no market value ... positive or negative ... there simply isnt a market for it.

 

[JSmith43]

I really don't know the answer to this question: Is anyone reading this thread aware of more than one sale where the seller wrote a check to get rid of the property?

As a broker, I remember negotiating and closing a transaction where my client purchased an upside down TH unit. The owner had relocated to NY. She had to send a cashiers check for about $17,000 to closing. The transaction price was $55,000. so she had underlying financing. So, this isn't really a negative MV value deal. But, it is evidence that sellers sometimes brought cash to closing in the good old days!

Let's say she owned it free and clear & had to send $17,000 to closing. Then it would have been a negative price, presumably a negative value. Leased land & methane gas from old adjacent land fill affected price a bit

Any negative value sales out there?

 

[prasercat]

Sacrificing home size means buying a house that does not meet your needs. Yes, that can help get into an area where economics are changing, but quality of life is a high price to pay for cash. Yes, commenting long distances can help get into an area of economic change, but quantity of life is the highest price to pay for cash. Using your home as an investment means you are at work 24x7. The joy of life is lost when your home is just another job.

I still don't get the correlation, since the company has the liability, not the individual top directors in the company, which was the point I thought you were making prior. Of course, the company is a money machine, and is a much better resource for compensation. I guess you were referring to a more typical type of domestic company?

I agree with what you say; however, location to me is the most important thing in quality of life and other factors are less important. However, I didn't mean that I was purchasing homes that did not satisfy a required size or utility, just that, I would opt for being "at miniumum" at that area to get the right location. I would often hear home seller ads making statements like "Be smart, get the most home for the money!", when the really "smart" thing would have been to buy the "most location" for the money and just get what you need as far as a home.

There is a lot of home buying in intrinsically "scarce" locations by investors in upswing cycles. When there is a strong downturn, they leave or try to leave such a market, which puts added pressure on prices; however, typically, if the decline isn't too severe, such homes typically change hands (consolidate) to primary or secondary residence owners that don't just see such homes as an investment. The scarcity characteristic helps offset the other adverse issues in the market, but may not entirely during consolidation.

I would say the latter definitely occurred in Park City, Utah. The Summit County resorts suffered some decline, but not like PC, which became a massive speculative bubble (a lot of California Investment) due to appreciation too fast over too short a time.

Naturally, what is great about a house is even if the "investment" doesn't pan-out or along the time line expected, if chosen well, is shelter and an awesome place to live (with privacy).

 

[prasercat]

David what you describe is a classic property has has no market value ... positive or negative ... there simply isnt a market for it.

It seems we go back and forth on this, but I suspect for good reason - they both have validity.

However, I would side with the camp that does allow characterizing a "market value" as negative, since this number has considerable significance in understanding the "barrier" to marketability or the magnitude of "non-marketability", which is useful in determining how it would need to factor into a possible structured market purchase or given there is a potential profitable use for the land, what the "net" profitability should be after the investment is made.