Land… Is it your next step in Real Estate?
Many Investors have started with flipping houses and moved into land over the years. Many investors have lost a lot of money making the transition and some have made great money and grown to new heights from entering into land. The following blog is designed to give you a birds eye view of getting into land and the information you will have to acquire and learn to be successful.
Not All Land is Created Equal
Land varies in value in so many ways, and all land is not equal. Many pieces of land have little to no value while other pieces can be worth millions to the right buyer. Here are some of the points we will be reviewing to assess the value of a piece of land
- Cost of Entry- Permits and Impact fees
- Ability to Build
Location Location Location
We have all hear it before but do we really listen when people say that location is key? Location is a broad subject and for good reason, location truly can determine a valuation of a home and make or break a deal. So what do I mean and what are factor?
- Is it a nice desirable part of town?
- Does it have great school district?
- Are crime rates lower in the area?
- Is it easily accessible to the local thoroughfares and freeways?
- Is it in a quiet neighborhood or part a popular climate like down town?
These are what I consider to be MACRO items for valuation on land. They are extremely important but not as important as what can happen when you make a poor MICRO decision. Here is what I mean by that.
- Location of the lot does not allow for adequate space for a garage or other property amenities. Compare Property A to Property B
- Property is located on a busy corner or entrance to a major community thoroughfare
- Property is located in a neighborhood with views but does not have them. Compare property A to property BEach of these factors can make or break a property when it comes to valuation. It is these reasons that make it so that we always need to compare the Comps of our property and NOT just the square footage. Not all homes are equal, therefore not all property is equal.
What you can build in an area is going to effect what you can make on a project. If everything around your property is a multi unit then it is most likely going to be that yo have to build a multi unit to conform, and it is going to go without saying that a single family home will not conform, nor will it bring highest and best.
How do you find out what you can build in an area? This is not a 1 size fits all answer as every municipality has its own regulations and guidelines. So you are going to have to do some hunting around to get it, but here are the tools you need to find it. Call, or search on the web, for your local building department. Ask them where you can find their local zoning guidelines and map showing each properties zoning. From there you will guided to tables that tell you the following information (and much more);
- Type of Zoning- Multi family, single family, high density residential, industrial, commercial, etc
- Number of Dwelling units per lot allowed
- FAR- Floor area ratio- This tells you what you can build as far as square footage in comparison lot size
- Coverage- Amount of the lot you can cover
- Setbacks- How far you have to setback the home on each side of the property.
- Height Restrictions- Height allowed in the area
- Parking- How many spots per unit and per number of rooms are required
- Design Aesthetic- Type of build and design that is allowed in the area
- Much much more!
Condition of Property
Not all land is ready to go for building, in fact many times they are very unequal! When buying land you have to do a lot of work before you can put a home on the property itself. You have to get utilities to the homes, you have to ensure that your property complies with storm water regulations, and you have to work with the local municipality to entitle the property or to get your potential build plans approved. This is a delicate subject and I always recommending hiring a reliable civil engineer to perform a feasibility report to ensure that you understand what it is going to take to build out the property. It is also incredibly important to note that your local Realtor or seller most likely DO NOT understand what it takes to build the property out. Here is a video of me working through some cost with some investors in my community. You will see it can be quite intense when run over all possible costs!
Permits and Fees
Every municipality is going to have fees associated with the building of new property. Many new investors are not aware of all of the fees that are associated with building new property. As a flipper coming into new development you take for granted some of the fees that are already paid on a property that you flip, but that is not the case with new builds. Here are some fees that you are going to have to take on;
- Plan Check- For both Grading plan and Building plans
- Permit fees
- Discretionary Permit- If required for your build
- Impact fees
- School Fees
- Park Fees
- Police and fire
- Traffic impact
- Indigenous animal fees
Note these fees vary from Municipality to municipality, and they can be quite substantial. To give you an example, currently I have a project that has $13K in water buy-in fees, and $12K in Sewer fees. My total fees for this project on permitting and build is approximately $65K so it is VERY important to understand what these are when you start.
Ability to Build
Even if you can build a property on a piece of land, it does not mean that it makes sense as
an investment. As you gain the information on the project you will start to understand what it is going to cost, and you may find out the land is worth nothing or less than nothing to you. This is part of the development process, you can’t build every project that comes across your desk, there are reasons some projects never get built.
Please note that I have not covered any of the costs associated with the actual build. This includes your consultants (Architect, Civil Engineer, Draftsman, Structural Engineers, etc) and your builder or General contractor. It does not include the pitfalls associated with your piece of land or the work required to get value. These are meant to help guide you down a path of knowledge so you can make better decisions and build on a solid foundations.
Andrew T Greer
CEO Better Tomorrow Group
Andrew is an active investor, speaker, Realtor, serial entrepreneur, and educator in all that is Residential Real Estate. If you would like a FREE copy of his book follow this LINK. If you would like to follow him on Social media you can find him on Instagram @beastmoderealestate and @bettertomorrowgroup, on Twitter/Periscope @TheBTGRoup and Facebook at https://www.facebook.com/bettertomorrowgroup/ Also on Snapchat TOO @BeastModeRE