Anyone ever bought land?

Question

I am curious about buying residential land.  Take a growing Metro - -be it Raleigh, Charlotte, Atlanta, etc.  Obviously, the suburbs around there have exploded and houses  (at least these days) are selling quick, and for tons of money.  Forecasts say population will increase in these Metros - and that housing supply is short.    I am wondering....what if one simply went an hour, even 2 hours down the major freeway.....and bought land.,..and waited.   It could be a $10,000 lot, could be $50,000.  I'm wondering how realistic it is to say "I'm buying these few plots......I'm fine sitting on them......and in 5-6 years I think a developer will be knocking on my door".  Any thoughts? Thanks

Chris London · Answer

@Mel Park I personally would rather have that $10K or $50K earning money in an income-producing property (rental) paying me monthly cash flow vs putting the cash in undeveloped land for X years hoping it will appreciate.

When you look outside the Triangle for example there is a tremendous amount of land in a 360-degree direction. We are not like many of the cities on the West Coast that have the ocean to the west and desert to the east making a finite amount of premium land.

Perhaps a hybrid approach could be to find a house on a very large lot where you get monthly cash flow (rent) with the intent to rezone or develop the land in the future. There's actually a beautiful house in S. Raleigh right now on acreage that fits this bill precisely.

Barry Ruby · Answer

Hi Mel, time and distance from employment centers and support facilities (shopping, medical, schools) all enter into the development viability of a site. So does being able to attach the site to infrastructure (wet and dry utilities) or to provide them (all or part) with on-site package plants.

Along with soil conditions and. topography, zoning and density should also be among your major concerns. Many counties are bound by "inter-governmental agreements" which obligates property within a proscribed radius of a municipality (city, town) to formally annex itself from the county to the city or town. You'd be wise to check to see if these agreements exist in each case/property and if they do, to ensure that your site meets the criteria set for annexationl

Lastly, when buying a site with the exit strategy being to "sell it to a developer" be aware that its value is tied directly to the zoning that can be placed on it and the densities permitted under that zoning. As you say, a lot value "could be $10k could be $50k". "Could be" can and should be calculated based on the product (multifamily, single family, commercial) you envision will eventually be built on the speculative site.

For Instance: If a medium density (4 to 6 lots/acre) Single Family detached development is the most appropriate use, you can work backwards by running a residual analysis to find for paper and finished lot values.

For Example: Let's say that single family homes in market area of the site for ~2,000 sf house is currently  selling for $250,000. You can reverse engineer the finished lot value under that house by: Assuming a $300,000 sales price five years from now. Take that $300k and deduct EVERYTHING BUT LOT COST FROM IT BY: deducting  5% for commissions and closing costs, a developer's profit of ~20%, hard cost and site cost. What is left is the value of a finished lot.

If you intend to sell paper lots, you will have to set your price (the price you'll sell at to the land and or home builder) at a value that allows the finished lot and or home builder to make their profit spread.

Please let me know if this makes sense and feel free to let me know if you have any questions. I'd also be happy to send you an Excel worksheet that performs the residual analysis note above.

Pat Lulewicz · Answer

You're not wrong @Mel Park. It happens all over the place. In the Raleigh MSA, there are folks in Wake Forest who are a good 35-40 minute drive from downtown Raleigh being harassed by developers, agents, and wholesalers. Granted, Wake Forest, like many of the suburban towns 30-45 minutes from Raleigh, has a thriving economy and life blood of its own now, so it doesn't have to depend on Raleigh necessarily.

Like all appreciation plays, it's speculative. It'll hinge on if developers can deal with rising material/labor shortages and increased prices, will buyers continue to pay for those increased prices via purchase price of a home 1-2 hours from a large MSA, and what happens in the gov't and fiscal policy scene.

Amy Shutes · Answer

@Mel Park

Hi Mel,

They are definitely developing in Charlotte and there is still a lot of land in the price range you mentioned.  If you can sit and wait I think that’s a wise investment.

Bruce Woodruff · Answer

There's a lot of land out there.....you'd need to be very selective (and a bit lucky) in your choice. I have friends in VA about an hour outside of DC, waiting for the developers to come knocking...they're getting closer, you can hear the bulldozers, but they can't wait forever....

Anyone ever bought land?

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