Land is not income property until it’s developed upon. When you buy land with the intention to hold it, you’re gambling. You’re gambling on how valuable that parcel will be to a developer in the future who doesn’t exist in the present.  You’re betting on how attractive this neighborhood (and this particular stretch of the neighborhood) will be when monorails and zip lines and hover crafts transport us around Los Angeles.  Either that, or you’re hoping to one day come into money and become a developer yourself.

Either way, when you buy land you have to think like a developer. If it’s a 7,500 sq. ft. lot zoned R3, how can you max that out?  Here’s what you can do “by right,” with that parcel:

  • Build 9 units
  • Must have 1.5 parking spots per 1-bedroom and 2 parking spots per 2-bedroom unit
  • Can build as high as you want
  • Normally, your total square feet cannot exceed a ratio of 1.5:1 with your land size

With a population density bonus for building affordable housing units, you can:

  • Build 13 units
  • 1 has to be “affordable”

So when you’re considering buying a property, it’s good to consider the underlying land value. You may think you’re buying a duplex, but a developer sees that duplex as rubble she’ll have to clear. This may give you some peace of mind when you’re paying asking price in a hot neighborhood. The seller may not have considered the land value that you now understand.

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