28 May 2010

What's our water worth?

They may know in Australia, but they do not in Arizona, and that question is coming up more often...

I got this from MD:
We own an acre+ of undeveloped Commercial 2 land in the middle of xxx, Az., upon which exist 2 commercial water wells operated by others.

Our land is for sale, but the water rights have NOT been included.

We have separate parcel #'s which include all water related easements for each of the two wells, this allows us to retain the land/water rights/income even if the other land should sell. (Which actually occurred 5 years ago re: one of the well sites.)

Our water income has been around $8,000-$10,000/year. No great shakes, but not bad for zero effort! (and yes, we realize, now, that we most probably sold the water too cheap!).

We are in a quandary...still...as to the best decision to make re: selling the above.

Will water become so valuable in the future that selling this now would be extremely short sighted OR is it such a small potatoes deal that garnering a good price and moving on makes sense?????

We have steadily refused all comers who have asked to buy the land WITH the water rights...we just don't know enough about it to make an informed decision...so....any thoughts?
To this, I replied:
Well, there are LOTS of water brokers in AZ. :)

Here's my general opinion: Take the $ if you need to pay the bills or don't want to stay tied there.

If you can wait longer, you can probably make more by leasing your water for 3-5 years and then doing it again.* That assumes that:
  1. Laws don't change to reduce prices.
  2. Demand continues to outpace supply
  3. Your neighbors don't deplete "your" water :)
To which MD replied:
To clarify, we are in direct receipt of the profits and have a contract with a water company who in turn sells to the community. *Don't see where leasing benefits us given our set up.**

We can renegotiate our contract or end it, or effect a transfer of the 'new owners to be' into the existing deal. We are interested in PUTTING A PRICE on the value of the rights, et al. and selling the land/rights as a package.

Just completing the construction of our dream house... Consequently we could happily direct deposit the land/water sales into our new 'money pit'...Thankfully this is not a 'have to' just a 'want to' situation!
...and then I said:
**I was referring to the idea that you can renew the lease with the company every one year, or three years, or ten years. More work if it's more frequent, but more likely that you will get "market price."

What is that price? Some % of the price they charge, I guess :)

A broker will know, but you will never REALLY know w/o an auction, and a one buyer auction will not work for you.

I can see the virtue of rolling it into your land sale; you will be giving up some LT profits for ST cash out.

Every buyer wants to pay less; every seller wants to receive more. Arguments up/down are really only about that, not logic or fact :)
What do you guys think they should do?