General raw land investing question- new member

[Teren Cooley]

Hey guys, My name's Teren and in based out of Richmond, Virginia. I'm glad to be a part of BP and look forward to learning from you all.  Right now I'm in the early stages of raw land investing.  I've spent the last few weeks educating myself as much a possible and am now diving into market research (looking into different counties for investments, analyzing deals, etc.) and am gearing up for my first investment.  I feel like I've exhausted a lot of the online resources I've come across and would love any recommendations on books or active online forums that focus on land investing.  Any general advice is also more than welcome. Thanks in advance!

[Barry Ruby]

Hi Teren, 

The best and only way to analyze a raw land deal is to find a property that you feel has development potential. While the vetting and development process may be the same or similar for any property, each land deal has its own specific set of issues and criteria to deal with.

Once you identify a property, you need to determine what you feel its "highest and best use" is; retail (what type), office, residential (what type) and so on. After determining what you think the most appropriate use is, you should contact the entity that will you will need to secure the approvals required to permit, build and operate the project.

If the property is in a county, you need to find out if it can be developed in the county or if it needs to be annexed and zoned into a city or town so that you understand the rules of the game that needs to be played to obtain all the permits required to make the deal happen.

Items such as zoning, land uses, density, required and availability of utilities, on and off site improvements all need to be understood before you can run a pro forma to determine the project's financial feasibility. You also need to confirm the market value of the product you intend to build and integrate cost and income factors to confirm that the deal works.

Once and if you get to a comfort level that you have a deal that works, in addition to doing a pro forma, you need to tie the property up before you spend any significant time or money going anything further than the process noted above. 

One of the most important deal points in negotiating the purchase contract is to make sure that the terms and conditions of the purchase contract provide you enough time to get to a fully approved project that permits the uses you have in mind. To ensure that you do have enough time, you need to run a critical path and pre-construction budget to figure out the steps, milestones and costs associated with securing a fully permitted project.

Once and if you get to that point, your land contract should take all of the above into consideration and dictate the amount of money the land seller will want in the way of earnest money while you go through the zoning and permitting "dance".

This gets tricky because you and the seller will have the exact opposite goals. He/she will want you to close as quickly as possible, pay as much earnest money as soon as possible and pay as much for the land as possible. You will, of course be looking for the reverse in all respects. 

The best way to determine the terms and conditions that work for you in regard to the land contract and the project you are looking to do is to arm yourself with facts and figures as they relate to the key deal points noted above.

Hope this helps a bit.

Best,

Barry