Got Dirt? Land as Investment – Part I

Got Dirt? Land as Investment – Part I

Many real estate investors have never considered land as an investment, but there are others who will not invest in anything else. Over previous decades, huge fortunes have been made by landowners. The question is whether land can be a profitable investment in these economically tough time, and the answer is a definitely yes.

There are several categories of land now available for investment at deeply discounted prices. It’s a veritable land smorgasbord out there.

Land investors are not the same as land speculators, who basically pursue a “buy and flip” strategy. It is the land speculators who bequeathed us the first category of available land. Between 2005 until mid-2007, the land flippers settled like kamikaze locusts over every available parcel, buying under the “greater fool” theory of investment and driving up land prices. These speculators were aided and abetted by local banks that failed to underwrite either the borrower’s capabilities or land value. As a result, there are numerous parcels of land now offered at deep discounts by desperate speculators or their lenders.

The second category of available land is the tracts that were purchased, and perhaps partially improved, by developers without the deep pockets needed to weather a down-turn. Many of these tracts have fundamentally sound development plans. You may have seen the developers thinly disguised pleas for help in advertisements seeking equity investors for a project. Those pleas for equity are often not successful; the developer is simply trying to hold on to his own equity investment and have some prospect for future return. Land investors can often buy the entire development tract at a bargain price.

The last category, often overlooked, is the land parcels where there is no financial pressure to sell. It could be surplus land owned by government entities, corporations, heirs or individuals. The owners just want to sell, and in order to compete with the land inventory dumped on the market by distressed loans or investors, and stalled developments, they have competitively priced the land. Sometimes, these sellers will even finance a purchase.

In the next post, I’ll offer some reasons that investors like buying land, and different ways of predicting land’s future value.

Susan Lawrence is president of Real Estate Strategies, Inc. based in Winter Park, Florida. The company’s experts assist commercial real estate owners, trusts, lenders, private equity companies and foundations in evaluating and developing strategies for commercial real estate investments. Additional information on qualifications and services may be found by visiting www.restrategies.net.

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