Why Land Entitlement is one of the Riskiest Forms of Investing - But Also Highest ROI

[Devin James]

Land Entitlement is one of the riskiest Real Estate investments for several reasons:

1) High Upfront Costs with No Guarantees: We spend tens of thousands of dollars on due diligence to ensure the property is suitable for development. If the property fails to meet our criteria, we're out of that money and must move on to the next project. There's no refund for the time and effort spent.

2) Dependent upon City/County Approval: Even after all the due diligence, we're still dependent on the city commission's approval. If they don't approve the project, all the time and money spent chasing it yields no return.

3) Market Risk: The market can change during the entitlement process, which can also work in your favor like it did for many Developers in 2021.

That's why knowing your municipality, understanding their processes, and making wise decisions in selecting which projects to pursue are crucial.

Success in development requires choosing the right projects that 1) meet your criteria and 2) have a promising path to approval.

The good thing is that this risk is compensated by having a higher return. We expect to make 3-4X our invested capital.