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Petitioner's real estate strategy focused on purchasing raw,
undeveloped land and reselling it to investors. Typically,
petitioner advised his investors that they would have to hold the
land at least 7 to 10 years in order to realize profitable
returns. Petitioner believed that the most profitable land was
located on the outskirts of a large metropolitan center. Based
on this belief, during the years at issue, petitioner had decided
that the land with the best investment potential was located in
Lancaster, California, and Palmdale, California, areas well
outside of Los Angeles. Petitioner felt that this land was well
positioned, given the expected population growth for Los Angeles.
The property petitioner purchased in Lancaster and Palmdale
was generally flat, semi-arid, undeveloped land. At one time,
the land may have been used as farmland, but, by 1989 it had
reverted to desert. The land was zoned for agricultural use,
with a density that allowed for one house to be built on every 2
acres of land. There were no improvements to or on the land
petitioner purchased, such as utilities, streets, curbs, or
gutters. The land was not subdivided, but simply consisted of
"raw" land in the desert described by metes and bounds.
Typically, either petitioner or EIC would acquire the raw
land by paying 10 or 20 percent down, and giving the seller a
note for the balance. Then petitioner would sell the land at a
substantial markup in what was described at trial as the "retail
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