What’s The Value Of Water?
When investing in real estate, few people think about water as a high priority. All of us have become used to water being readily available and rarely give it a second thought. Most would think that water is only a consideration for farmers who need it to irrigate agriculture. However, due to climate change and population growth, the world is experiencing large impacted areas and major cities that are running out of water.
Will Water Run Out?
Las Vegas expects to run out of water by 2030. Lake Mead near Las Vegas is the water supply for more than two million people. Its level has been declining steadily for decades. Las Vegas gets a limited supply of water from the Colorado River that goes through Nevada all the way to Southern California. The river water is not sufficient to support the population there either.
California now has droughts that last for many years. This makes wildfires more likely, like the one that burned the entire town of Paradise and the surrounding area to the ground in 2018. This wildfire named “Camp Fire” burned over 150,000 acres, destroyed nearly 19,000 buildings, and cost $16.5 billion in damages. Sounds more like hell than paradise.
NASA scientists predict that California could run out of water by the end of 2020 and thereafter experience a mega-drought that might last for decades. All of a sudden, that multi-million-dollar luxury house in the desert or in beautiful, sunny California seems much less appealing.
Investing In Water Rights
Major investors, including gigantic hedge funds, have been buying up water rights all across the United States. Water rights are like any other mineral rights for a property in that they can be sold separately from the land.
Real estate investors who are interested in participating in the potential success of companies that own water rights can now consider investing in exchange-traded funds (EFTs) that include a bundle of stocks from companies that own these rights.
Water Everywhere And Not Drop To Drink
A homeowner might have beautiful lakefront property or a lot with a river running through the land. However, if the owner does not have the rights to access any of that water for residential use it is only a nice view and not a water resource.
Oceanfront properties have a vast supply of seawater that sits in front of them. However, again the legal right to use it may not exist and the cost of desalinization of salt water is still prohibitive.
Properties in rural areas may need to get a permit to drill a water well that must be approved by the county authorities. Even with an operating well on the property, it is possible for a well to run dry.
Conclusion
Real estate investors and home buyers looking to acquire a property now need to include the serious consideration of the access to water and any available water rights as part of their due diligence process.
If you are in the market for a new property or interested in refinancing your current property, be sure to contact your trusted home mortgage professional.
A 1031 tax exchange is a legal way to defer paying capital gains when selling a property and then buying a “like-kind” property within the allowed period. The time limits allowed are 45 calendar days after the close of the sale of the first property to identify the like-kind property for acquisition and then close the purchase transaction to complete the 1031 exchange within 180 calendar days.
Last week’s economic reporting included readings from the National Association of Home Builders Housing Market Index, Commerce Department reports on housing starts and building permits issued.