The truth remains that undeveloped real estate can generate steady cash flow in the same way that every other form of investment can.
Raw property is a scarce resource, which makes it highly attractive to developers. If you buy property in an environment that is developing and will, there’s a possibility it would be worth much more in the future.
Investors interested in developing raw land should conduct due diligence and carefully research the sector they intend to invest in. Paying heed to industry dynamics is the only way to do it.
You would be able to truly grasp what to invest in to follow the market’s cyclical activity. You must first research recent industry trends in your chosen market. Buyers will be searching for land if there’s been a faster surge in construction ventures in the region. It’s also a safe idea to keep an eye on the expansion of local markets.
We’ll walk you through the raw land acquisition phase step by step now that you have a better understanding of undeveloped land as an investment:
- Assess the economic viability
- Calculate the bid price
- Learn about the land’s zoning.
- Make a financial strategy.
- Begin construction while adhering to zoning regulations.
- Promote the land/property for sale.
- Economic Feasibility
The first move in investing in raw land is to assess its economic viability. Before you begin, as with any real estate purchase, you must first decide your expected return on the land. This is significant because it reduces investor volatility and serves as a model of the investment’s expenses versus profits. While the statistics would be projections, knowing the project’s viability—including projected expenses, sales, and total return—will help investors thrive.
- Acquisition
You will help decide the bid price if you realize the expenses you’ll possibly face, as well as what you can get in exchange. At this point in the process, investors must have contractors apply actual offers for the project. This would have total project expenses and figures on what you’re expected to pay and a maximum bid amount.
- Zoning
The third stage of raw land investment is mainly concerned with the land’s architecture. In essence, this applies to what form of property can be established on the property and looking at municipal zoning laws.
Zoning can play a significant factor in how you continue, depending on the form of property you choose to build or how you want to present it to customers. Zoning laws would specify what kinds of homes will be constructed on the lot, whether singular, multifamily, condominium, or industrial. As a result, as an investor, you can find that your investing strategy is hampered. Understanding the zoning rules of the city is critical before getting involved with raw land investment.
- Financing
The form of funding you receive would be determined by how you plan to utilize the land, as it is in all real estate transactions. The loan-to-cost ratio is the one factor that borrowers can pay close attention to (LTC). In turn, the LTC is the sum of money a developer may lend for a building and may vary depending on the form of development and intended usage of the land.
- Construction
Construction is the second phase of the pure land construction process. In certain instances, this would involve lateral growth (such as grading for sidewalks, curbs, and utilities) accompanied by ground-up design. The building funding part of the project is also something that developers should be mindful of. They will typically compensate contractors in increments of tasks completed, including stages of the project.
- Marketing
Marketing is the last phase in the land creation process. This is when the first step falls into action. When deciding on your marketing plan, do your homework on the neighborhood, the current value, and the demand for rentals. To draw buyers to the house, investors should have a marketing strategy in effect. Work with a realtor, web directories, the MLS, newspaper ads, and even social networking will help.
