Land Development

The Top 5 Strategies Making Money Investing in Land

The Top 5 Strategies Making Money Investing in Land 

Investing in undeveloped land is often overlooked and may not have the glitz and glamour as other real estate investments, but you know what it doesn’t have? The high risk and competitive market.  

High profit margin deals are often the results of understanding investment strategies and knowing how to uncover invisible risks through proper due diligence.  

Not sure investing in land is actually profitable? Keep reading to discover the profitability of land investing!  

  1. Developing land 

Developing land has the highest-risk, highest-reward potential for land investors. Compared to other real estate investments, land development faces far less competition and with only 6% of the land in the United States developed and the current trend of flocking to the suburbs, the opportunities are vast. 

Getting into land development may sound overwhelming at first, but there are several exit strategies and areas of focus for individuals to pursue so finding your niche will help you from being overwhelmed with the overall concept.  Finding a mentor, a partner or business, like Land Intelligence, may be a smart decision to accelerate your knowledge and growth. 

The reason some of the highest margins are in land development is you will be adding value to the property by changing the zoning, permitting, entitlements, adding utilities, etc.  This is a similar concept to a fix-n-flip with houses as it saves time, cost, and risk to the prospective buyer as the entitlement work is completed. Depending on your exit and financial strategy, your returns could be more than 5x your initial investment. 

  1. Subdivide 

Subdividing a great and relatively simple way to create value to the existing raw land.  Dividing a lot into smaller sizes will generally equate to a higher price per acre for each of the new lots that can now be sold to individual home buyers or home builders.   

The key to subdividing is understanding the current zoning and optimizing how many lots you can create.  To complete a subdivision of a property, a proposed plat will require approval from the local municipality.    

Finding land to subdivide may be the hardest aspect to this strategy.  You may find infill opportunities where there is an oversized lot that can be divided, recreational land, or land in the suburbs.  Regardless, having proper searching tools to discover these hidden gems will ultimately save you time and money in your search and thus increase your returns on your deal. 

  1. Flip 

Flipping land is one of the most popular ways to invest in land.  The concept is simple, buy low, typically 30-40 cents on the dollar and sell high, typically 60-70 cents on the dollar.  The core strategy to land flipping is a win-win-win scenario where your seller wins as they want to offload the property and your buyer wins as they are buying property for less than the market rate. 

The common ways to find land to buy at these prices are through tax sales, foreclosures, or through a volume based approach of mass mailers.  The tax sale process is different state to state but generally there are lots with tax liens on them.  If they go unpaid, the county offers the property for sale at discounted rates. 

For the direct mailer marketing campaigns, a volume based approach is most common however applying some filtering criteria into your lead lists will help you improve your hit rate and lower your upfront costs.  For example, I may want to remove land that was recently purchased or I may want to find owners that live out of state.  Leveraging software to save you time and cost will increase your returns in the long run. 

  1. Buy and Hold 

No different than houses or stocks, land is a great investment as it appreciates.  Especially in today’s market, if you can find a great deal on a piece of land, the investment is bound to return a profit in the future.  Taxes on undeveloped land are relatively cheap and there are many things you can do with the land that provides passive income. 

As the owner of the land, you own the water, mineral, and air rights to the property which gives opportunities to leverage these for passive income.  Another common practice is to sell your timber to a local company.   

There are also many leasing options to consider for your land.  These include farming, hunting, recreational land use, and even RV parking storage. 

  1. Seller Finance 

Getting a loan for land is often a challenge.  Buying land with the intent to create passive income through seller financing is a win-win solution as you are offering individuals who may not want a traditional loan another option to enjoy and use land.  Owner financing is when you as the owner of the land will sell the property and will carry the financing for the buyer, no different than a bank.  The buyer of the property has the responsibility for taxes. 

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Land Development

Land Development: The Right Way

Land Development: The Right Way

Read on for every step you need to make profitable land deals.

Up Front Feasibility

  • Leverage technology to perform due diligence from a distance. You can examine important key features such as: zoning, topography, developable area, wetlands, flood zones, utilities, including water and sewer mains, electric transmission or gas lines, etc.
  • Review site constraints like right of way, easements, encroachments, any physical improvements.

Due Diligence

  • What are the local entities that have jurisdiction over the property?
  • Check for deal complicating invisible risks like tax liens or title issues
  • Review accessibility to utilities like water and sewer
  • Have perc tests been completed?
  • What environmental assessments are needed?
  • What are the local government approval processes and procedures?

Exit Strategy

  • You should have the end in mind before putting a property under contract.  Be certain to have a firm concept of your intended use for the property.
  • Have multiple exit strategies, in case your top strategy falls through.
  • Establish your contract phase go / no-go decision criteria and stick to them.

Financial Analysis

  • As you complete your up-front feasibility, you’ll determine what permissible uses and densities are allowed by zoning, and thus, can predict the fair market property value.  You can then determine what purchase price you’re willing to pay.
  • Armed with the results of due diligence study, you can prepare cost estimates for development costs, based on your exit strategy.
  • Does the deal pencil out?  Based on your plan, you can prepare the expected sell price and prepare an executable plan of action.
  • Evaluate whether you need investors or other financing to support your financial needs.

Conceptual Plan

  • Based on your vision of the property, you should have a Conceptual Plan prepared, to discuss approval requirements with jurisdiction staff prior to commencing any design efforts.
  • Required adjustments to the Conceptual Plan will form the basis for the final Site Plan, which can then be used for construction permitting.
  • If your desired use is not permitted by the current zoning, special permits, special exceptions, or rezoning may be required.  The time and costs to obtain such Zoning actions can be significant and must be considered.

Construction Plans

  • Based on intended use, permitting jurisdictions will require sets of design plans.  These plans must address required demolition, erosion & sediment control design, site layout and transportation access, grading, utility-service design, storm-drainage treatment and storm-water management design which must all successfully endure agency review prior to obtaining a permit.
  • For multi-lot developments, subdivision may be required to allow for individual lot sales.  Subdivision requires an associated Subdivision Plat which must be prepared and approved, and then recorded with the jurisdiction land records.
  • Permitting and platting can be time-consuming processes, which time must be considered as part of the exit strategy.

Approval Process

  • Understanding the approval process will help determine your plan for the property.
  • You’ll need to know local jurisdiction requirements and approval processes.

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Land Development

Top 5 Land Deal Exit Strategies

Top 5 Land Deal Exit Strategies

Profitable land deals typically have a solid exit strategy in mind prior to getting under contract. Land Intelligence breaks down our top 5 recommended exit strategies.

1. Wholesale Land Flip

Land flipping can be a great profit-making business model for those willing to take the time to find the right deal.  The key to land flipping is finding deals where you buy parcels between 5-30% of market value and sell between 50%-80% of market value. Mailer campaigns and tax sale strategies are common areas of focus for land flippers.

2. Entitle and flip to builder

For developers looking to take on a little more risk for more reward, a sound exit strategy is developing the land to entitlement and finding a buyer to build such as a home builder.  To be successful, you need to do the market research and understand what is driving the market.  Once you figure this out, along with the right location, you can plan your development project catered to a target rich audience to maximize your returns in the shortest amount of time.

3. Build and sell

For those with access to suitable capital and willing and able to tackle longer projects, developing land with the intent to build and sell, such as building single family residential, can result in large returns.

4. Build and manage asset

Managing property assets isn’t exactly an exit strategy but it does require starting with having the end in mind.  In the current market, multifamily residential, active adult, or affordable housing is a sound strategy for long term wealth.

5. Land banker

Don’t overlook the investor as an exit strategy.  Access to additional capital through investors offer flexibility and can help de-risk your financial situation and may allow you to do more deals.