My name is Siva. I am very new to REI and looking forward to learn from you guys and this is my first question.
I found a deal online that 1.9 Acre commercial land next to local highway in florida. What are the cons in buying and holding a commercial land and hoping that some day a retailer or builder will lease it ?
I have full-time job and family with young kids. My hands are full. So, I narrowed down my REI choices to raw land and multi family homes. My main intention in buying land is that hoping I get great returns in the future and it requires less management. However, I have feeling that it may not be that simple. I really appreciate your insights and advice on this matter.
Your question is right up my alley. I am an investor myself and also a commercial real estate broker with my own firm that close deals in all states.
I specifically am a specialist in larger multifamily buildings and triple net leasing with a retail component. I also spent years in commercial development assembling land for large projects and developers before going into already built properties.
I understand your position completely as I stay very busy with my company as well. I owned a 20 unit apartment building before but it took up a ton of my time and focus away from my business.
A lot depends on what kind of return you want today and in the future. Multifamily is only hands off when you get to a certain size and scale of units. You also land non-recourse loans and can have a full time PM and a repair person on the larger properties which better suits your situation.
There are also other properties such as retail and triple net where you just "collect the check" and are not worried about "residential tenants, toilets, and termites".
The 1.9 acre commercial property I would have to see it. There are commercial land loans with a good amount down but you lose ability to drive down a low buy price when not doing all cash.
The other component is the " development event horizon ". This is the predicted point base on when the property will be bought by a developer and built out for development. This is important as you can't depreciate the land for taxes so until such time as the property is developed you are paying ongoing taxes each year and money is going out and none is going in. The 1.9 acres might not be all usable " we call this net developable area ". If for instance 1 acre is swamp land it has little to no monetary value. The topography of the land dictates dirt removal and leveling costs before going vertical with improvements.
I have some clients right now where they are busy with their business and I am with mine. I have a structure of I make a commission going in and I make a commission going out plus a 20% equity interest in the deal. What they are getting for the 20% is I am watching the dirt for the opportune time to sell out and then I am determining highest and best use with my development experience. It's good for me because I watch the dirt versus a physical asset that will take up a bunch of my time. I make the most money transacting deals with my clients so will not add anything that sucks away a lot of my time. If the property is in a planned commercial area for development but it's zoned residential then the holding taxes will be less until it's ready to sell. No reason to pay for high taxes on raw land waiting years for development to happen.
Hope this helps. Anymore questions feel free to ask. The 1.9 acres will only accommodate certain deal size projects. I can answer so much more questions on a phone faster than I can type.
If I were you I would stay away from raw land, its very speculative and you need to know what you're doing or you'll lose your shirt. That said a 1.9 acre parcel is large enough for a drugstore or gas station but there are a lot of variables that you don't know (zoning, demographics, traffic counts, which retailers are expanding, how much rent they'll pay, etc). Development is a very competitive business and is outside your circle of competence, I would stick to something simple like investing in SFR or multifamily.
Thank you for reply and letting me know about other types of REI like retail and tripple net.
Thank you for reply. It's good know about other variables involved in raw land.
I am glad I have asked question here.
Siva that's why if you are going to buy raw land you get with people who know what they are doing.
The largest project I have worked on covered 25 acres with an after build value of 150 million dollars and 650,000 sq ft of retail mixed use space. I UNDERSTAND dirt and how to use it.
There is much more than mentioned here about land versus other investments.
I am not even sure land is right for you and what you are trying to achieve. I talk to many people over the phone weekly usually about 30 minutes to an hour in length about what they are trying to do. I will be the first person to tell you based on what you have said that a right fit might be XX or XX and give pluses and minuses of each.
What I get from you is that you want hands off but a good producing investment. What options are available depends on many factors and land is not the only possibility.
Some of my clients care more about equity growth then cash flow today. Others want mostly all cash flow and some want a balanced mix.
@Joel Owens I was interested in land development and I noticed you have a lot experience in that area. What's the best way to obtain knowledge about land development? I'm plan on being a developer in the future once my residential investing takes off.
Need to decide what kind. Residential, commercial, etc.
Different capital needed and experience for building one house, versus a subdivision, versus a strip center, etc.
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