Given the over saturated real estate market in the United States, it is not surprise that a number of investors are turning to land development. Everyone is drawn to the trend of investing in undeveloped land, from novice investors ready to enter the real estate market to more experienced investors eager to benefit from purchasing land and building new structures on it.
The real estate industry offers several lucrative options for investors. There are numerous choices available and the land development investment is just one of the many options that are open to investors.
Although purchasing undeveloped land is a challenging tangible investment, new investors shouldn’t always avoid it.
If you are thinking about investing in land development, the following guide may help you get started, steer clear of some frequent mistakes, and lead you in the right direction.
What is Land Development?
Raw land development is the act of purchasing a plot of land to either construct it or hold it for future appreciation. If you’re wondering why land is considered an investment. It’s because there are several key advantages to investing in raw land development, including the potential to sell the property, generate passive income from renting it out, or just benefit from its appreciation.
How to Invest in Land Development?
Investors that are interested in land development should conduct a thorough market analysis before finalizing their investment. To do this, keeping an eye on market trends is the best course of action. You’ll be able to predict when and where to buy if you can follow the market’s periodic movements.
Now that you have a general understanding of how to invest in land, let’s walk you through the process of land development.
Table of Contents
Step I: Analyze the Project’s Economic Viability
Analyzing the economic viability of raw land investing is the first task. This is crucial because it will present you with a model of the costs and profits of your investment. Although the figures will only be estimates, knowing the viability of your project—including the costs, income, and overall return projections—can assist investors to assess whether they have a chance of success.
Step II: Acquisition
You can more accurately calculate the offer price after you are aware of the expenses you’re likely to incur. At this point, investors must request that contractors submit bids for the project.
Step III: Zoning Codes
The third stage of land development investment focuses mostly on the architecture of the land. Zoning is a key factor in deciding how you proceed with the land development, depending on the kind of property you want to construct or the plan you have to market it to attract purchasers.
Zoning regulations will essentially dictate what kinds of buildings can be constructed on the property, including single-family, multifamily, commercial buildings, etc. As a result, before making a land development investment, investors should research the zoning laws.
Step IV: Financing
The type of financing you acquire from lenders or banks will depend on how you intend to use the land, as with all kinds of real estate transactions. The loan-to-cost ratio is a major factor that investors, both new and experienced, need to pay close attention to. The LTC will typically rely on the type of construction you want to build on the property.
Step V: Construction
Construction is the next step in land development. The site will eventually be built from the ground up, with horizontal development such as digging for roads, curbs, and utilities taking place along the way.
Step VI: Marketing
Marketing is the final stage of this land development process. Investors must create a strong marketing strategy to lure buyers to the finished property. This could entail contacting a realtor, using internet listings, newspaper advertisements, and social media platforms too.
Important Factors in Land Development
It takes strength to develop the land. A great amount of work and research is required in the process. The process can, however, be very worthwhile with careful planning.
Before you begin, take a moment to review the following tips for land development:
- Calculate the Holding Costs: It may take some time for your investment in raw land to start producing its stream of income because zoning and building approvals are time-consuming processes. Make sure you precisely calculate the holding costs related to land development especially when it comes to loan repayments so that you are ready for the “in-between” stages.
- Keep up with the Market Trends: Before concluding a deal for raw land, conduct a thorough market analysis and track developments over time. It would be better to keep an eye on nearby land development initiatives. You can then plan when to begin (or end) developing your raw land.
- Recognize Potential Risks: Although raw land developments have many advantages, there are a few risks involved too. Performing thorough research before making a deal is the only approach to minimize potential hazards.
- Work with experts: Despite the effort, real estate investors are unable to master everything or be everywhere at once. You need a trustworthy team of experts to support your project when it comes to land development. Make sure your team of project managers, contractors, and construction employees is highly efficient.
Key Takeaway
If you’re looking for an effective real estate investment strategy, researching the process of developing undeveloped land may be vital. Investing in raw land development is a smart, low-cost strategy that helps you in growing your real estate portfolio efficiently.
If you want to succeed with raw land development, implement the steps listed above. As you use this investment technique, keep in mind to rely substantially on research and analysis. Always plan your investment by taking into consideration any modifications to the location.
Find a profitable land for sale in the USA and add a land development investment to your portfolio today to set yourself apart from the crowd.
