Many people have been told: "Buy land, they are not making any more of it." This advice is not entirely accurate, as "they" do make land in some places (e.g. Dubai). And while there is plenty of profit to be made in land investment, the advice to buy land should not be followed blindly. Typically, the most successful investors in land are the users of the land (a corporation that will erect a building on the site, a developer who will develop the land and sell for a profit, or some other end user) rather than the speculators.
While many brokers successfully help buyers look for and acquire land deals to flip for profit (through development, conservation easement packaging, flipping quickly in a hot market, or a lengthy buy and hold strategy), the level of risk involved in this kind of land speculation is high. In fact, most investors would do well to stick to more traditional income-producing properties. However, the allure of land and the amount of potential profit available from land transactions will mean that land developers, land speculators and land investors are not going away anytime soon.
So, how does one invest in land? This is not an exhaustive list, but some of the major steps involved are as follows:
1. Find Land: There will always be land available for sale somewhere. The trick is to find the right land (i.e. for the right price, in the right location, and for the right use). Where do you find land for sale? There are many sources of finding land for sale, including: the government (often purchasing more land than was needed), family and friends (may have land they wish to unload, gift, or transfer to keep in the family), lenders (who may have foreclosed on property or own property they wish they had not acquired), real estate syndicates (to pool money to enable the purchase of more expensive or desirable land), companies (the needs of corporations change constantly), real estate brokers or agents (who often have more familiarity with the available land options in a certain market area than any other source), owners (who may have land they would like to unload with varying degrees of urgency), auctions (often the best way to move large amounts of land is an auction process), or some other source.
2. Analyze Land: Like any real estate transaction there are numerous aspects of a land acquisition to consider, including but not limited to:
a. Location. "Location, location, location." You’ve heard it before. The importance of this phrase has only slightly diminished with the increasing use of internet capabilities and telecommuting. The location of land is important in business and in personal life. The profit potential on a piece of land in Melbourne, Australia is different than the profit potential on a piece of land in Ontario, Canada. And the profit potential on a piece of land on Main Street is different than the profit potential on a piece of land on First Street in the same city. Location matters.
b. Physical Attributes. The importance of physical attributes may depend on the buyer’s needs or the needs of the ultimate end user. For example, one buyer might be happy with clay soil and another buyer may prefer a rocky soil. Some attributes to consider, include: topography, altitude, soil, environmental conditions, vegetation, area climate, mineral rights, air rights, water considerations (lakes, ponds, streams, creeks, rivers, sea or ocean, well-water, water utilities, irrigation water, etc.), views, privacy, nearby traffic flow, air travel (flight) patterns, noise, earthquake frequency (or proximity) or other natural disasters, proximity to industry (smoke, debris, fire, chemical smells or fumes), etc.
c. Ownership. Who owns the land? Does the owner want to sell? If so, how urgently? Do you want to do business with the owner? What are the roadblocks to doing business with a particular owner? If the owner is a foreign entity, what reporting obligations and logistical problems does this foreign owner status pose?
d. Improvements. Are there any improvements (buildings, outbuildings, sheds, alternative energy sources, etc.) on the property?
e. Accessibility. This aspect is related to "location, location, location," as proximity to major amenities, traffic veins, or municipalities should be considered. But the "accessibility" aspect primarily deals with the ingress (ability to enter) and egress (ability to exit) options for the land. Is there access year round or only during the summer and fall? Is the access going to be restricted by a change in traffic flow? Is there a legal access?
f. Lease Status. Is the land currently leased? If so, what are the terms? Can the lease be terminated?
g. Area Analysis. What borders the property? What is the economic condition of the area where the land is located and the surrounding areas?
h. Local Preferences. What is the local attitude toward a particular use or type of development?
i. Building Codes. Can you build what you want to build on the land? Will it be prohibitively expensive?
j. Zoning. Same question as above. Can you build what you want to build? Will it be prohibitively expensive? Can you use the land how you want to use it?
k. Nearby Amenities. What is close to the land (e.g. schools, other developments, military bases, shopping centers, parks and other recreational options, etc.)?
l. Utilities. What are the options for gas, water, sewer, electricity, phone, cable, internet, and other utilities, on the land?
m. Nearby Labor. When buying land to start a new data center or high-tech company, is there enough skilled labor available, and enough skilled labor development resources, to keep the pipeline of technically skilled employees flowing into the business? Or will this type of business entity have a hard time finding people to fill skilled positions?
n. Taxes. How do the taxes on the land compare to the other alternative properties?
o. Survey. Is there a recent survey for the property? Is the survey current? Is the survey accurate? Are there boundary disputes?
p. Transportation. What is the proximity of the land to public transportation (bus lines, air travel, and railroad stations)? Are there toll roads or toll bridges on nearby roads? If so, how much are the fees? How much time does it take to get to major points of interest or employment?
q. Price/Value. What is the price per acre or frontage foot price? How does that price compare to other property options?
r. Liens. Are there liens on the land (tax liens, judgment liens, mortgage liens, mechanic’s liens, etc.)? Will the liens be cleared or satisfied at or prior to closing?
s. Title. What is the status of the owner’s title? How good is the title? What title insurance is available? What exceptions to coverage come with the title insurance? Can those exceptions be removed?
3. Acquiring Land: After finding and analyzing land for sale, the next step is a lease or purchase of land. There are many difficult questions to answer when acquiring land. When Should the Land be acquired? How much land should be acquired? What price should be paid for the land (or what is the value of the land)? If a decision is made to purchase land, who should the buyer be (i.e. should a single human buy the land, or should an entity be formed for the acquisition, and if so what kind or type of entity should be used)? Should the land be leased or purchased?
a. When should the land be acquired? If the buyer needs the land now, the answer is now. If the buyer is unsure, one option is to use an "option to purchase." An "option to purchase" is often referred to simply as an "option," and typically gives the buyer an option (for consideration) to purchase the land at a future date, at a set price or price formula.
b. How Much Land Should be Purchased? The answer to this question will depend on how much land is available, the purchasing power of the buyer, the needs of the buyer, and the amount of risk the buyer is willing to assume.
c. What is the Value of the Land? Land (like most real property) is considered to be highly illiquid, which means that land cannot be sold almost immediately, like stocks or bonds on a publicly traded exchange. A piece of land may have several different values, including but not limited to:
i. "assessed value" (given by the local tax assessor). Tax assessed value is not always an accurate assessment of the value of the land (in fact, in many cases, assessed value is very different than the value that a buyer would be willing to pay for the land);
ii. "market value" or "fair market value" (often determined by a real estate appraiser). Land for sale in Durango, Colorado might cost between $200,000 and $2,000,000 for a residential home lot in a good subdivision, whereas land for sale in Denver, Colorado might cost between $75,000 and $750,000 for a buildable lot in a good subdivision – depending on the location in or around Denver in which the buyer desires to build a home, lot size, and other variables;
iii. "listed value" (as set by the seller/owner). All sellers would prefer to get maximum value for their land but some sellers may be very wrong about the true value of their land ; or
iv. "cost" (as paid for the land, including all related acquisition costs).
d. Who or What Should Buy the Land? When considering a land purchase, the form of buyer chosen (individual, partnership, joint venture, corporation, limited liability company, limited liability partnership, limited liability limited partnership, etc., etc.) will play a large role in the tax aspects of a transaction and the amount of limited liability afforded to the individuals involved in the purchase, ownership, and disposition (sale) of the property.
e. Should the Land be Leased or Purchased? If, for example, an investor wants to create an income producing building but does not want to pay for the land the building will be located on, the buyer may enter into a ground lease with the owner of the land for a period of time. This can preserve the capital of the investor in the near term, and many leases of this nature provide the buyer with an option to buy at a later date. But if the lease option is not available, or the buyer prefers to have legal title to the property, a purchase should be made rather than a lease.
4. Acquiring Foreign Land: Acquiring land in a foreign country is like any property purchase abroad, the opportunity for greater profit may be enhanced by currency and market value fluctuations, but risk is increased due to unfamiliarity with local laws and increased reliance on foreign expertise to obtain and maintain investment value. The word "acquiring" is used because many countries do not permit foreign ownership of land. Often a foreign party must use a trust, long term lease, or a different arrangement with a local government, entity, or individual.
At the time of this writing, an investor in Mexico may need a "fideicomiso" arrangement or bank trust in order to purchase certain coastal property, although the legislature in Mexico will likely ease the restrictions on foreign ownership to stimulate investment. For another example, as of 2013, long term leases are commonly used in place of ownership in countries like Indonesia as some are ill-informed about the ability to own property in Indonesia (when in fact a Hak Pakai title currently allows for a foreign ownership for up to 25 years plus an additional 20 year extension, which may be more hassle for some purposes than a 99 year or other long-term lease).
In China, and many other countries, foreigners are not allowed to own land. But many countries are reconsidering their position on foreign investment in real property in order to remain competitive and increase revenue.
A local expert is recommended for any real property acquisition but this recommendation turns into a warning when dealing with foreign property: foreign land should not be acquired without using a local professional with a good reputation and track record.
5. Financing a Land Purchase: Many land buyers use their own capital or obtain traditional financing for a land acquisition. But, in the world of real estate, land is also an area that lends itself to many owner-financing situations. In an owner-finance or "seller-carry" situation, the owner typically takes a note or promissory note as part of the purchase price for the land. Land can sometimes be more difficult to finance through traditional lenders, and locating financing options can sometimes be made easier by a real estate agent or broker who may be able to provide recommendations for potential lenders who are more comfortable with making loans for land acquisitions.
6. Improving Land Value: If the land is acquired without a predetermined purpose in mind there are several possible methods of increasing the value of land during a holding period, including but not limited to: create a development plan for the land to sell to a developer/builder, build improvements on the property, rezone the property for a different use, create demand for the land through public relations efforts, or by controlling the availability of portions of a larger parcel or surrounding parcels to create and/or control demand (either by limiting the types of buildings that can be built on the land or by limiting the amount of land that is sold at a certain time).
7. Selling Land: There are many ways to sell land, including but not limited to: signs, marketing to likely buyers directly, direct mail and other forms of advertising, etc. In practice, the type of marketing needed will depend on the type of land and the market where the land is located. When marketing and selling land, the best decision is to use a professional real estate agent or broker who has real estate marketing expertise or who may already have a list of potential parties who may or should be interested in the land. Many sellers can spend tens of thousands of dollars on marketing, without results. The costs involved with marketing and selling land can be decreased for a person or entity that does more volume in sales of land than the average seller/owner.
When investing in land (buying and/or selling), using the right real estate professional can eliminate risks and increase results. By clicking on the button below and entering your desired parameters, Real Estate Metro can help you find the right professional for your purchase or sale of land, at no cost to you.
via:https://www.realestatemetro.com/blog/land-for-sale-is-buying-land-a-good-investment
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