Lay of the Land
Last week, we closed on a $25K purchase of 2.5 acres in Joshua Tree, CA. It was more or less a gut decision to invest in this area and you can read about how I was influenced. This past weekend was the first time actually seeing and stepping onto the property. It was a crucial first step to get the lay of the land and begin plotting our course. I purchased a measuring wheel at Home Depot before the trip so I could get some baseline measurements of the property line and it’s contained structures. It turned out to be difficult to determine where exactly the property line began and ended. It’s not like there are neighbors with picket fences at the edge of the property to give you any idea of where your property ends. It’s the middle of the desert! In fact, there weren’t many homes or structures around at all. None the less, I did my best to give ourselves a starting point.
A quick Google search shows that 2.5 acres (the total size of the property) is equal to 108,900 square feet. Just by looking around, I have no idea where the property lines really start and end. However, I do know for sure that what I call the “front” of the property is up against a North-South running road. There are no existing markers to indicate the other edges of the property. About 173 ft to the west of the road are posts in the ground which are spread about 147 ft apart North to South. While the area within the posts and the road only comprises about 25,431 sqft (or about a quarter of the total 2.5 acres) I can be pretty certain that this area is within my property. Since much of the allure of this area is in the natural beauty of the landscape, I don’t intend to build an expanisve structure. Much of the land will be conserved as is. The structures we do setup could easily fit within this 25K sq ft area and we will use it as a general guideline.
The existing structure on the property was set back about 36 ft from the road. It sits on a concrete foundation with about 615 sqft of livable space. Keep in mind, there’s not actually a roof on this structure and it’s in pretty bad shape. There is quite a bit of work to be done before it’s actually usable. The configuration is made up of 2 “rooms”; a smaller entry room at the front of the structure and a larger in the back. The back wall faces West and I can immediately envision a large sliding glass door that opens to the patio with fire pit seating and incredible views of the desert sunset. I wonder how long before that becomes a reality.
Just south of the main structure is an additional concrete foundation that we had no idea would be there. At about 454 sqft, it’s a welcome surprise as it potentially affords more options for future development. Maybe it becomes a garage or a separate living space or maybe just something cool.
Now, on to the investment aspect of this project. After all, although Joshua Tree is a cool place and it’s neat to have a property there to call our own, we still need this property to give us a good return on investment. For a typical rental property in the Los Angeles area, if we could get a 8% net return (Cap Rate) on our property, that would be really good. That’s with a property that is more or less ready to go or with a small amount of rehab needed to start earning market rent. With the JT property, there is significantly more work to do and I would hope to get a much higher return for the added effort and risk.
So, how do we get the best return on our dollar? The obvious approach would be to do a serious rehab of the structure and turn it into a cool studio or 1 bedroom that could consistently attract guests on AirBnb. A high aesthetic bar and unique design touches would surely compete for top dollar in this area but it’s also the most expensive of the development options on the table. An alternative to consider would be buying a renovated Airstream and placing it on the property. I’ve stayed in AirBnb Airstreams and when done right, they are a very fun experience. Although it probably wouldn’t earn as much as a complete home, it would cost far less. An even more simple approach would be to simply rent out the land as one or more camp sites. This would be the cheapest of all options and would likely only require basic utilities to be functional and attract campers. This may sound unusual to some but is something that‘s’ already common on AirBnb and can be a really fun stop for those who love to experience nature from a tent.
The pros/cons earnings/expenses for all of these options will have to be fully considered. My next article will focus on these options and how the numbers might add up.
