PLOTTAGE can create value

Plottage value is defined as the increase in value achieved by combining two or more parcels, so the whole is worth more than the individual parts. Since the opposite result usually occurs, this increase in value is predicated on the improved usability of the larger parcel, often creating a higher and better use.

Back in the dark ages, Southern California was starting to experience its rapid rise in value in the 1970s. I had access to parcel maps, and I saw an interesting possibility in a semi-rural town east of El Cajon. A good county road provided the frontage and access to a water main for a 1.22 acre triangular parcel that, due to its odd shape and some ravines, would make a poor building site. Adjacent to that was a larger parcel, decent shape, good terrain, and 2.73 acres in size, but no access to roads or water. The zoning was one acre minimum size, and the two together made over 3 acres.

Adjacent to the larger parcel were some small 30 ft. by 90 ft. lots with dirt road frontage. I got out my calculator and found that if I got one of those lots and combined it with the other two parcels, I would have 4.01 acres, big enough for 4 building sites. At that time a 1-acre building site in that area was worth around $7,000.

I made some calls to the owners of the three parcels and we ****ered over the price. The owner of the larger parcel would sell for $5,000, since it lacked access and water. The mid-sized one would sell for $2,000, because it lacked a decent place to build on. The tiny lot would sell for $500, since it was too small to build on, unless it was for a shed.

We opened escrow and the papers were drawn up for signature. I got a signature loan from the credit union to pay cash. All signed except the little lot. I called him on the phone and he said, "Oh, I couldn't sell it for $500, I just might build a garage on it." I asked him how much he would need to have. He said he wouldn't sell for less than $800. Well, I wasn't going to settle for 3 sites if I could have 4 for an extra $300, so he came in and signed. Escrow closed, and I had 4.01 acres with access, water, and 4 nice sites for a total of $8,300 that were worth about $28,000. I had trouble sleeping that night.

For $40.00 and some careful calculations, I got a lot split and had the 4 sites approved. Three were traded as the down payment on a 4-unit property, a 3-unit property, and a triplex, and I began my part-time career as a landlord. The fourth lot was sold for $6,500 cash and paid off most of the credit union loan. The four-unit selling broker wanted a commission on the lot he convinced the seller of the four units to accept as the down payment. He settled for a personal note for $700, payable $40 per month. (Think outside the box!)

There are bound to be similar situations still out there.

cactusbob