What Your Broker Never Told You About Investing in Raw Land

Real estate investing often conjures images of glamorous, glass and steel high-rise office buildings, expansive warehouses, sprawling apartment complexes, and occasionally a young couple fixing up a small house to rent it out or sell for a profit. When the term land investing comes up most people picture an old man who looks like Col. Sanders rocking gently back and forth on his porch staring out over vast empty, undeveloped acres. In real life not only would this form of land investment be too boring to tolerate, it is also far too expensive. Real land developers know that money and land is made quickly, and by the truckload.

Many seasoned real estate investors when first venturing into land development is quick to find out that not only does it present an entirely new learning curve, but that the lessons can also be quite painful. This is why it’s critical not only to seek out good mentors, both in person and through books and other media, but also to have a strong background of real estate investing before getting heavily involved in land development. For those with the time, money, and experience, however the rewards for land development far exceed all other forms of investment property. With most forms of real estate investment a common strategy is to make some improvement, whether it’s a purely aesthetic improvement, a structural repair, or financial improvements such as a rental increase, and then capitalize on that improvement either by refinancing or by selling on to another investor. With land development, however, value can be created simply from having the property reclassified. In the jargon of land development this is known as taking a piece of property to the map. While land development itself may be somewhat different from residential property investment, many of the same principles apply. A novice land developer would be well advised to begin with a smaller property and work his way up to larger and larger deals over time as he gains experience. These little successes not only give him a sense of confidence and familiarity with this type of property, but are also sure to inspire confidence with investors when he is raising money for a larger and more profitable deal. Bear in mind that this scale of property investments when dealing with raw land is often far in excess of what would be considered typical for a residential property, with small land deals often starting at a quarter to half $1 million. On the other, with scales so high there are also plenty of counterbalances for the investor to take advantage of. For example with most land development deals the investor almost always has an inspection. Typically of about three months or so during which he can analyze all the numbers and lineup any other components of the deal without having to put any of his money at risk. This is an essential component of any land development contract as changes in zoning often require negotiation with several town or city planners and officials in order to be put into effect. For the experienced land developer, who has taken the time to gain experience and to build the necessary contacts there is no shortage of deals to be had, ironically an experienced investor can frequently secure and profit from a deal without ever having to place any of his own money at risk.