Is Land The New Move?

Question

Hello everyone,

As the market is up in the air, I feel like a lot of investors I work with are more skeptical about deals. I have heard land development might be the next best option and wanted to jump in here to see if anyone has experience with land development? What do you need to look for when deciding on a good investment?

My previous experience in new construction multifamily development has me curious to see how other people view other options when it comes to larger land deals and how differently these deals are viewed vs. your typical BRRRR, fix and flip and so on.

Thanks!

Nate Wiger · Answer

There's no technical definition I'm aware of, it's generally a sliding scale. For this lot, we did all the environmental studies, grading plans, fire approvals, and landscaping plans, along with a preliminary architectural design since it helps with the sale if the buyer can "see" themselves living in the property. A blank piece of land with no house design is generally too much to grok for people.

We didn't do any actual grading to the lot this time. We had planned to grade it and create a pad which would have generated a lot more value, but with the changing market, we wanted to minimize our exposure.

Purchase price (off market): $595k

Improvements cost: $76k

Seller note interest paid: $53k

Property taxes paid: $11k

Total cost basis: $735k

Selling price (in escrow): $1.2M

Gross profit: $465k

I'm very much an amateur and if I was doing it for real I could probably move a bit faster and save quite a bit of money on the improvements - I used an overpriced civil engineer who I won't use again. I don't think I could turn this into 6 months but probably 2 years rather than 3. I was just talking to my land broker about another deal and he was saying it would be similar, $200-300k outflow and 2-3 years. Again this is in coastal CA which is really tough to develop in so YMMV.

Nate Wiger · Answer

I've done a few small scale land improvement deals. Currently in escrow selling a parcel I improved. Two things I've learned about land.

First, it's a very long play, at least in CA. This one took me 3 years. I know that's normal because there's a neighboring parcel being developed by a very well known professional builder and he's at the same stage as me. Unless you can get special treatment through low income or high density development, it's a snails pace due to all the approvals needed.

Second, financing is very difficult. It's typically all cash or hard money. Different than MF development where you can get a construction loan based on future leased values.

These things work for me because I have a day job with W-2 income, so I typically do everything with cash, and I'm not in a hurry to make a profit. My uncle does spec home building for a living and it's a very tough business as Eliott said.

Eliott Elias · Answer

Depends on what the development is for, if you're building residential then you're playing in the market everyone's scared to get in. I would consider flex space or some kind of commercial, residential is over saturated

Taylor Bennett · Answer

This is such great information! I will definitely take this going forward with land deals here in NC.

Taylor Bennett · Answer

At what point would land be considered "improved"? Would it be when the land has been cleared? A structure built?

Is Land The New Move?

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