Moving from Rental investment to land development

[Sameer Patil]

Hi All,

I have been mostly dabbling in rental investment for last few years. However, considering the competition in current market for any properties (I am based on Seattle area), I am looking into other options like land development. I understand, this will involve a lot more risk and effort than being a landlord. However, I feel the rewards are greater as well. 

Have you made this switch and would like to share your experience? I am hoping to learn and avoid some of the pitfalls.

Thanks, Sameer

[Mike Makkar]

Sameer,

Land development is not for the meek. I know a lot of people who have made 10x their investments and others who have been sitting on their "parcel" and paying property taxes on them. Unlike buy-and-hold,  land development can benefit greatly from an investors creativity and vision beyond buy/hold rental or a flip.

1. Parcelization - buying 20 acres and splitting into 20 parcels each for a profit

2. Value-add through re-zoning. From agricultural to light industrial to reside tial to commercial. Check with the county/city to see if they are open to rezoning. Have a civil engineer friend by your side

3. Network with possible housing developers and commercial developers who may be open to collaborate to buy your allocated land across a fixed time period.

Contingency wise, you need to have the intestinal fortitude to lock 300k to 500k of your money without any returns for 3 to 5 years along with paying taxes. Unless of course you can envision and execute on #1 through #3 for a shorter period of time. I have several developer friends who are doing this and most have had 50% compunded yearly returns across 2 to 4 years. Another downsides is that most banks don't have an appetite for land development (which could be good thing, since it's going against the flock and you may not have competition). I've done the numbers in texas and unfortunately construction costs are prohibitive to make a profit on land development. My better option is to buy land on the cheap now and hope for a downturn in the market, then construct on the cheap and hope to sell for a profit when it becomes attractive again. Just too many "hopes" for my taste. Nonetheless, i'm interested in what you find out and would like to learn yiur experiences.

Cheers and good luck!