The Cheesecake Approach to Investing in Raw Land
There are unique and simple ways to profit from raw land. The first step is finding raw land. Many investors believe that this is the toughtest part of the process, but it really comes down to a numbers game. Here are some choices to stir the pot:
1. Multiple Listing Service – Go out on the MLS or work with a REALTOR to find available tracts of land. Unlike single family homes you aren’t looking for the lowest price deals here. Because of the cheesecake principle you can buy the land close to or at the selling price and still make big money.
2. Newspapers – Check out the classifieds. A lot of people who sell land like to do it themselves so they advertise in the paper or on the Internet such as Craigslist to sell their land.
3. Public records – Don’t forget that people inherit properties and go into foreclosure on land just like houses. Keep an eye at the courthouse. Odds are the other investors are passing it by.
Keep in mind no matter who it is or what they are selling the land for the really crucial element is they are motivated. You want someone who will let you tie up their property for a period of time for a small amount of money out of your pocket. They don’t have to be on their last leg, but they do need to want to sell.
How much is it worth? – This is the one I had the hardest time getting my arms around. Houses are easy. You have an appraiser look at the house and then everything else that sold and you get a number. Land is a little different. There are two great FREE ways to calculate land value.
1. Call the county. –Call the courthouse and tell them about your land and ask for some assistance on what has sold recently. They probably won’t have something the same so ask for some larger tracts, and most importantly some smaller tracts.
2. Call banks that finance land. Now do the same thing with a bank that specializes in land (Mike has a list in his course) Not only will they give you a price you now know the deals can get financed for that amount so you can refer your buyers to these banks!
3. Calculate your price. If you are purchasing 100 acres you can get the value of that tract from the big tract prices above. That is your purchase price. Then when you decide what size parcels to sell off you can use the little tract prices to get your selling prices.
4. Profit. The difference between your purchase price and the sum of your entire small tract selling prices will be your potential profit.
How small do I make the tracts? This is the key to the system . It may go by unnoticed unless you have tried to subdivide land before. You need to call the local land use department for the county the land is located and ask an important question. “What is the smallest tract of land I can develop that is exempt from county regulations?” This answer is the smallest you want to create unless you feel like going through zoning regulations, land use meetings and possibly some really large expenses. Listen to Mike’s interview to find out how this could save you a couple million dollars, no kidding.
How else do I know if it is a good piece of land? You can look at a couple of other basic characteristics of the land other than how small you can make it. First look at the road frontage. The more frontage the small the lots and the more you can create in most counties. Second look at other usability issues such as where it is located and access to the land, including what is around it. Lastly ,look at features. Does the land have creeks or lakes or other natural amenities that are appealing to buyers? Weigh this into your decision to make a purchase.
(Judson Voss is co-host and producer of the nation's leading weekly real estate investing podcast, and an iTunes top 5 business podcast, Get Real, The Real Estate Investing Show for the Rest of Us. You can learn more about Judson, his wife and business partner, Lynn, and everything you ever wanted to know about the down to earth real world approach to real estate investing at http://www.getrealrei.com)