Commercial land, buy and hold buyers?

Question

I know most buyers are looking for cash flow properties but what about commercial land that's below market value from motivated sellers that will go up in value. Are there buyers looking for this sort of property?

Jon Klaus · Answer

Vacant commercial land is for advanced investors.  It's pretty speculative.  Developers, business users, or high net worth buy and hold guys might do it.  As far as a flip, it needs to be a screaming deal, or the flipper has a buyer lined up, because otherwise it's too ill-liquid and risky.

Karen Margrave · Answer

Chuck Catchings First thing you need to understand about BP and most other sites, is, don't take things personal, there are different personalities here, and they are ALL trying to give you feedback and presenting varying points of view. Nobody is trying to ruffle your feathers, so take things with a grain of salt and give a little grace. Several of these guys have a lot of knowlege behind them, and though I have 25 years myself, I still learn great new stuff everyday, and respect their opinions.

You've already been given some great advice. I'll add, If you aren't knowledgable on commerical, you probably don't want to jump in until you have some experience under your belt, as you can lose big. Areas in a city can very tremendously, in fact, from one block to the next, so if you don't KNOW the local market, you need to be cautious. What is the neighborhood like where the property is? What is the zoning? Is there anything close by that has sold recently? Is it in an area that is developing? What size is the lot? What is the highest and best use? What makes you think there will be a demand for the property in the future? Costs to develop the lot? Are utilities to the property? How long can you afford to hold it? What are the costs to hold it?

Bryan Hancock · Answer

We're buying land in Austin as quickly as we can find good deals.  I think we know the markets we're working better than pretty much anyone and things are getting quite nuts for deals.  10+ offers in the first few days of stuff hitting the MLS is not uncommon for some things presented on the MLS in Austin.  Nuts.

Buying vacant land is certainly speculative and I agree that it is really only for pretty advanced investors.  Doing due diligence on land is very hard at times and you can lose your a$$ if you don't know what you're doing, the city changes things, etc.

Jon Klaus · Answer

Chuck, why not sign up for a BP Pro or Pro Basic membership so you can post your deals under Marketplace all you want?  It's totally worth it if you have real deals.  I've gotten more inquiries and deals here than on my LoopNet Premium account.

Chuck Catchings · Answer

I'll respond to Seth first: Seth did you get those discount numbers reversed? You say significant discount at 10% to 40% then you say slight discount of 60% to 80%??

There seems to be a fine line here on BP about asking questions and solicitation. I've had my hand slapped twice already about this.

So I can connect with you if you want to know more but I'm mainly just looking to see what sort of feedback I get. I know commercial is a whole different animal compared to residential. So again any info or advise is greatly appreciated.

Marc, some parts of the Texas market are the hottest anywhere in the nation, especially Austin with double digit appreciation rates expected for the next 3 years. Of course you'll get some people that will argue the double digit statement but I can show you these numbers. It's not everywhere but certain pockets.
   Now the oil boom is a whole different subject and not only in Texas. I am following this in 6 different states and compiling data and talking to local real estate companies, local businesses, just plain local folk and just basically doing research. You mentioned Texas and there are actually 2 different booms going on there, Permian Basin and Eagle Ford down south. The numbers depending on who you talk to can be well how do you say stupid 
money. If you want to know more let me know but we should hook up elsewhere because there is just to much to write about this on BP. I'm not soliciting here just offering what I have found out.

Chuck

Chuck Catchings · Answer

Bill, I guess I owe you an apology but everyone needs to read my original post. It was a general question, nothing else. I just wanted to hear thoughts on commercial property. I didn't mention an offer or say I was looking to buy or sell. Yes a piece of commercial property was brought to my attention by a motivated owner/seller. But I will leave it at that and close this discussion.
  I also thanked everyone for their comments as well and yes there are some very smart and very experienced people on BP. This is a great site. So thank you again, everyone, for commenting.

Chuck

Bill Gulley · Answer

Chuck, I suspect you were commenting to my post, we/I speak to all comments in threads, not just those of the OP, it's an open forum and all that is said is open to comment.

Although you did mention buying below market value, Seth mentioned discounting aspects. My comments are directed to inform not only an OP but all readers. Mineral rights was another subject brought up and Texas being the subject area prompted my comments.

If you expect BP to be much like some guru sites where every deal and conversation will give nothing but positive reinforcement, you'll be disappointed. As for me, you'll get the reality of realty, most of what I do is try to keep people from getting into trouble, it's easy to do in RE.

I usually don't look at someone's profile before I post, I doubt many do. One reason I don't, especially with new posters is that thier profile is not complete or it's rather limited. So, all we have to go on as to understanding the level of competence or expierence is based on what is posted, not a good indication all the time, but that's all we get. If there is a lack of detail with a broad question posed with statements like "buying under market value", that may influence the level of knowledge assumed.

When I purchased my first commercial property I didn't even realize it was commercial, it was a house along a highway in a very small town, I lucked out with a half acre, it was rented and later sold, torn down with a C-store built there. That was in '75, I've learned some things since then with commercial.

Looking at raw land means identifying potential use, location, trends and concentrations of business and land usage, public acceptance, governmental constraints, local economy and time constraints. If you are at a point where you have a command of these factors then you're probably ready for commercial land. Good luck!

Chuck Catchings · Answer

Well I wondered how long it would take before someone made a negative comment. First off NO ONE said anything about buying at a discounted rate. All I asked was for some feedback on the issue of commercial land compared to residential property. You don't think I don't know that commercial is speculative and didn't take some time to look into this before posting here. So I got what I was looking for from some people that have something to offer other than the obvious. 
   As far as mineral rights your absolutely right, but FYI, the land I was referring to has mineral rights in place and part of the deal. The owner already got an offer for the mineral rights and he turned them down. I could go on here but then I'd be no better than, Oh I guess I'm stating the obvious now.

Chuck

Joel Owens · Answer

You really have to know what you are doing with land to make it work. The holding costs for land classified as commercial with taxes is very high.

The clients I have that like this kind of investment is very busy people that own many businesses and do not want to own another thing to manage. They just want something down the road that gives a return. There are also land funds around that buy land like this and sit on it waiting for the right time to sell at a profit to a developer. They let the developer take the risk of finishing it out for the bigger reward.

I have been looking at a few parcels myself that are cheap. Right now the highest return with my cash is mailing out my mailers to commercial property owners for listings. Nothing beats my return on that investment.

Sewer easements, topo, parcel size, location all play into due diligence among many other things. For the great locations you will be competing against businesses that want to build there now. Many other locations the sellers say "potential commercial". In the boom  times I would say yes that was true. Even in suburban areas growth was going outward everywhere and not much thought was given to locations and growth "would catch up" to the development.

Well the bottom fell out and most companies and developers learned a valuable lesson. Now they care about quality of the location as the developers know that is what corporate clients are looking for. They want careful thought out growth with premium locations to limit risk for their expanding company.

Mom and pop businesses do not care as much for location as the corporate companies they just want to be close to the action but not pay a premium for it.

Chuck Catchings · Answer

Jon, yes you have and I just want to say that this is without a doubt the best forum I have ever come across with really top notch people and advise. I'm just trying to find my place here and let things fall where they may. I just have to find my niche and run with it. Thank you everyone who has taken the time to make a comment.

Chuck

Commercial land, buy and hold buyers?

Most Popular Reply