"A couple of examples: In the mid- to late 1990s, as Sacramento was recovering from the aerospace collapse in California, a pair of young developers just starting out, began optioning land on the outskirts of growth corridors. They'd process them and then flip them to a developer or builder, depending on size. They did very well and kept at it going a bit farther out, buying a bit more as they had more money."
"They started optioning land far out because they did not have the money to option great ground closer in. There was no incredible insight or thoughtful calculations on pricing differentials driving the process. It was simply what they could afford to do. Nothing wrong with that per se, but because they did not acknowledge why they were doing what they were doing and simply began to make up a story in their heads about their foresight, they had no turn off the road signs"
Many more people know how to do their job than understand why a given approach works, and not knowing the reasons behind success creates hidden risk because strategies that worked before can fail when conditions change. Two Sacramento developers in the mid- to late 1990s optioned peripheral land they could afford, processed and flipped parcels, and expanded outward as profits grew. Growing reputation and self-belief prompted continued doubling down that ended in collapse during the financial crisis because they lacked awareness of the underlying drivers. A related observation from a homebuilder shows repeated reliance on optioning and approvals without testing why the approach worked, removing warning signs that would have indicated when to stop.
Read at www.housingwire.com
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