While building has come to a complete stop in the exburbs (areas beyond the suburbs), infill projects near major metropolitan areas are hot.
In fact, finished lots in good locations are becoming a rare commodity as more consumers become less willing to make long commutes.
John Burns Real Estate Consulting Group expects land development in good locations to increase substantially this year now that conservative bank financing has returned. Public builders are buying finished lots near large cities at a faster rate than private builders, and their market share is growing rapidly.
Does this mean you should run out and buy some land so you can sell it to a public builder?
Not exactly. Slick salespeople have been hawking “land banking” for years, trying to get investors to hold land until it becomes valuable. Unfortunately, that could be a really long wait if the land is out in the exburbs where there’s already an oversupply of homes from overbuilding in the early 2000′s.
Holding land in the outskirts can be costly if you add the missed opportunity of creating income from that asset. Let’s say, for example, that you used your IRA to buy $100,000 worth of land that is located over an hour from the city. How long will it take before builders are needed there for the lots to become valuable? Based on the amount of inventory for sale today, it could take decades.
If you invested that $100,000 to buy a rental home instead of land, you could earn $10,000 net income each year. After 10 years, you would have doubled your money. Would the lot out in the booonies double in value over that amount of time? No one knows for sure, but we do know that one strategy is predictable and the other is speculative.
At Real Wealth Network, we have found that infill projects are a safer bet for land flipping, but they can be quite expensive. That’s why optioning the land can be a home-run.
We recently optioned waterfront property in Alameda that would cost $16 Million to purchase, but only $2.4 Million to option.
We took the option! In the meantime, we will get the property entitled within 18 months, and then sell the110 finished lots to builders for a total of $28M. The $10 Million dollar profit will be split amongst the owners and investors. In order to acquire this deal, we opened the LLC to 48 investors contributing $50,000 each. ROI is expected to exceed 67%.
To find out more about this project, go to:
About the Author: Kathy Fettke is the founder and CEO of Real Wealth Network – “The Real Estate Investor’s Resource.” She specializes in helping people build multi-million dollar real estate portfolios through creative finance and planning. Kathy is also host of The Real Wealth Show on KABC Los Angeles and on iTunes.