Buying Land For Development
"The Right Way The First Time."
If I had a prayer said for me every time I got an email about problems of buying land first, I would have a guaranteed place in heaven.
Please don't do that anytime, but particularly if you are new to development. You will hurt yourself financially and it is a deep hold to get out of, OK?
Let me give you some land buying advice now and if I happen to repeat myself in some of my commentary, just use it as a reinforcing tool. Land is only worth what you can do with it.
Now I am not discounting it beauty or its views in making my comment, but remember we are in the development business and buying land is a fundamental cost factor ... we just can't afford to get it wrong.
If when buying land and anticipated subdividing it into 'X' lots or building 'X' number of units on it, only to find out later that you were not allowed to do that, I don't think the beauty or views would offer you much solace or gain you much sympathy from the lender.
Before I say much more, I had better say something to you guys who are not buying land because you already own some land.
If you have owned land for some time as an investment or you inherited some land, then you job is to find out what you can do with it ... its capacity.
So you are in the same place as a new person buying land, except you would have bought it at a better price or inherited it with no debt.
Developers talk of a buying land's capacity. Elsewhere I think I have written about the farmer knowing his/her land's yield per acre. They could even break it down to the yield for a good weather season versus a poor rain season.
Their land yields so many tons per acre and if the crop sells for '$X' per ton, it is easy to work out the value of the land.
With a developer it is the same. How many 'lots' or 'units' can I grow on this land? How many dollars can I sell my lots or units for in a good selling market or a poor selling market.
Can you see the analogy in these two situations? Can you also see that the $million dollars you paid for the land anticipation of developing 10 lots or units gives you a base land buying price of $100,000 per lot or units.
However if you found out later that you could only develop five lots or units, the land content has just doubled to $200,000. I don't know many business that can be successful if their raw costs double, because of a lack of knowledge, do you?
So buying undeveloped land is a 'work in progress' situation. In fact what I am leading too, is that you don't buy land as a first step in your development career at all.
You get control of the land for a sufficient period of time to allow you to actually determine its capacity ... in so doing you 'prove' the value of the land in today’s market ... you 'prove' its development financial viability, before you actually buy the land.
So with all these techniques I'll teach you, I hope you can see how we reduce our 'commercial risk' in every development opportunity.
Author of "Residential Development Made Easy"
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