Everywhere you look someone is saying or writing that land is protected from a declining economy and that it is easy to become a developer, that tax benefits are afforded to land owners and you can't lose money in land. Nothing could be further from the truth. More money is lost in land than other type of real estate investment. Land is raw material that developers use to make building sites, farmers use to grow crops, and people use for recreation. Seldom will raw land pay for itself. In order for land to have any value other than holding the earth together is demand. The lowest level of land use is recreational. Agricultural applications produce very low returns to investors. The highest and best uses include improving the land with building improvements that have a demand for end users or tenants. In today's raw land environment developers (generally) are not buying land to develop, farmers have limited lending resources and are waiting for prices to drop before buying to assure a reasonable return on investment and labor.
In order to experience any level of success in purchasing land it will be necessary to understand what it means to leverage and how to be patient. Leverage in essence means that the less you put down at the time of purchase means the greater percentage return on cash invested when the property sells. The only problem is that with leverage comes high monthly payments with relatively no to low income on the investment. Every dollar spent in holding the investment drives the ultimate rate of return down. If you are leveraging then every day you own the investment you are losing investment return. If you purchase land with $1000 down and sell it a day later for simply $1000 more than you paid for it the return is 100% on cash invested. In an up market the dynamic changes and profits are possible because of the demand curve. Holding land in an upswing market can be profitable but still requires care in setting the purchase up correctly. Land is a complicated investment and be careful of anyone who tells you different. Developing land is even more complicated with banks becoming involved, city and county planners, neighbors, buyers, real estate markets, and time. Time can kill almost any project. You buy land today in a thriving market and it is entirely possible that by the time you have finished the development the real estate market has dried up, just like the 2006 market leaving thousands of unpurchased lots in the market.
A philosopher once wrote, "Patience is a virtue" and in land buying patience is truly a virtue that will assist in making the right buy. A veteran land buyer will wait it out and when the time is right will make offer that assures low risk and an opportunity to make a profit. Land buying should be all about self preservation. What land sold for yesterday has nothing to do with what you should pay for land today. What you pay should have a profit built into it, period. Have a well researched plan, a profit motive and strong finances. Land is illiquid and not suited for a quick flip. If you are considering land as an investment hire a specialist with expertise in land dealings, do your research, give yourself plenty of time to perform your due diligence and choose the investment well.
Douglas Ferguson has been a successful land broker for over 17 years in California and Idaho and at present is a Designated Broker with Ferguson, Beal & Associates in Middleton, Idaho. Mr. Ferguson is an Accredited Land Consultant and a Certified Land Consultant.
Currently, Mr. Ferguson serves as President of the American Land Institute, Member of the World Organization Land Federation and teaches continuing education in matters of land brokerage. http://www.douglasferguson.net
This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.
No comments:
Post a Comment