Buying Land For Investment
Buying Investment Land
There seems to be a never ending list of strategies for buying investment land, some of which are valid and others that are pie-in-the-sky and/or unethical in my opinion. One thing that makes it harder for a person new to buying investment land are the real estate “experts” that sell training or publish materials that tell you “how to”. Let’s take a look at the strategies that I believe can work, also a few that I feel should be avoided.
Know your true capabilities:
First, if a person buys land but does not possess the skills or resources to bring it to the highest and best use, then you have a potential problem. An example of a skill deficit would be the individual that buys land requiring physical improvements that he wants to do himself, but does not have the knowledge to correctly do them. An example of a resource deficit would be the same guy who knows how, but does not have the required equipment. Another common resource deficit is the person who does not budget correctly for the true expenses required to finish the project. In short, an assessment of self and resources prior to buying any property is important.
My post titled “Is Land Development For Me?” is one way to take an honest look at yourself. https://www.landdevelopmentrealities.com/home/2019/9/26/is-land-development-for-me
Strategies that can work:
Note the words “can work” since nothing in real estate acquisition or improvement is the same. This is because every property is inherently different. At the same time there are principals and strategies that apply to land in general. Let’s take a look.
Surplus corporate real estate:
Big developers or large corporate land owners sometimes have stray parcels that do not fit into their overall development strategies. Even if you are a small guy I think attention should be paid. I once bought 6 parcels from Weyerhaeuser, one of the largest land owners in the U.S. They were on the very edge of several thousand acres they owned and did not have any future plans for. I bought them for a steal since they were useless to the corporation’s future plans.
Builder’s excess inventory:
Let’s be honest; not every builder (or developer) in the world is the best at managing finances. Sometimes due to cost overruns, slow home sales, or a declining market, builders can be approached for opportunities to buy excess lots that they own outright, or are under a binding contract for.
Take care in contracting - see my post “Working Land Deals With Builders”. https://www.landdevelopmentrealities.com/home/2019/7/17/working-land-deal-with-builders
Landowners that have to sell:
If an investor checks the county tax parcel records for land opportunities, he can also check the records for ownership, then check the recorded documents for an owner in distress. How do you know who is? One way is to look for involuntary liens on the property. This could be a sign of a distressed landowner. Closing on any deal should be contingent on the release of existing liens.
Tax & mortgage liens:
Similar to above, tax liens and mortgage liens can be easily researched on the county website and are available as a matter of public record.
See my post - What is a Real Estate lien?https://www.landdevelopmentrealities.com/home/2019/5/10/what-is-a-real-estate-lien
Land locked dirt:
Although a fundamental right of property ownership is access, the truth is that some parcels are truly land locked. Two examples are easements that cannot be realistically permitted and constructed and an easement that has expired or been terminated. For a land locked parcel strategy to work, the investor needs to have a rock solid plan for solving the problem prior to closing on it. This is a tough buying strategy for novices, but land locked parcels can sell for much less than surrounding properties without the same problem.
Buying tenant in common ownership:
Multiple owners (tenants) can own a property and tenants in common is one way to jointly hold title to a property. Tenants in common own an undivided interest in the land but are deeded separately for their fractional ownership. The fractional ownership is transferable to another party without the consent of the other owners. Caution - a prospective purchaser must be aware that they will be buying into co-ownership with others - others who might not like the deal. Also, all of the legal agreements that the ownership is subject to, like the deed of trust, must be thoroughly examined.
Divorce:
Like country singer Tammy Wynette once sang “Our D-I-V-O-R-C-E becomes final today … and this will be pure H-E-L-L for me”. There’s your opportunity my friend.
Holding land for long-term appreciation:
This is the old school way. Buy the dirt, hold it for the long-term and sell it years down the road after it appreciates. This kind of waiting for the active investor is probably not the first thing he thinks to do. I do like this strategy for the younger guy with wealth who is looking to balance out a larger portfolio with real estate. He is not dependent on any short-term income and has time on his side. If he buys smart, with an eye for where the future growth is going, he might do well.
Other strategies I have not used:
I like to write about strategies I have actually done myself and succeeded with. I sometimes mention strategies of others where I know first-hand that they have succeeded. What follows are other investment buying strategies that I have not used, but should be mentioned:
Properties that have been seized
Sherriff’s sale
Land auctions
Wrap up:
Each and every strategy listed requires significant thought and research prior to implementation. As I always say, don't forget to use the right professionals for any transaction contemplated. I always avoid any land purchase where I can’t create a true road map for what improvements are needed, to know that they can be realistically done, and have a firm plan for what is necessary to accomplish them.
I avoid and do not endorse pure speculation, where a subjective guess is made on future potential. The goal for an investor is to buy at the best possible price and have a firm strategy to increase the property value. I cannot hope my way to prosperity when the outcome is based on luck. That’s no way to run a business. Be thoughtful and careful when implementing buying strategies.
