How Do I Know What This Vacant Lot Can Produce in Gross Income?

Figuring out what a vacant lot can produce is a lot easier and more difficult than it seems. In our last blog, we talked about how to determine how many units you can put on the lot. Now we are going to talk about how to determine what kind of income those units will produce.

The first step is research. You need to look within a 3 to 5 mile radius to see who your competition is. Make a list because you are going to be watching them from here on out. Now we are going to look and see what they are renting their 10x10 units for. You need to know what climate controlled units are renting for as well as non-climate control units.

Again, the rents are going to go in a bell curve, but we are going to use the 10x10s for our approximation. You want to check all of them and find an average. One of them may have a lower occupancy rate and so they have a special going on while others are fully occupied and so they are charging more.

Let’s say that you determined that the average 10x10 climate controlled property rented for $185 while the non-climate controlled rented for $125. Now that you have your averages, we are going to plug that into your formula.

In our last blog post we determined that you could put 347 climate controlled units every 3 acres and you can put 463 non-climate controlled units every 3 acres of land. Let’s do a few examples. If you just want to do a non-climate controlled facility, then you would take 463x$125 to get your gross monthly income, $57,875. Now you are going to multiply that by 12 months. $694,500 would be the gross annual income. Remember that this is the gross income if you were 100% occupied.

When you are determining if something is feasible, you need to take into consideration that you may not ever be 100% occupied. Find out what they typical occupancy levels are in your area. If you don’t know, then you should use 75% or 80% occupancy knowing that it will take you up to 3 years to hit that number.

You will also have expenses. This can range from 35% to 45% depending on how well you manage your property. You always want to use the worst numbers to calculate. This way you will be pleasantly surprised when your profit margins are higher.

You can use the same formula for any combination of non-climate controlled and climate controlled combination that you want to make. The key is to figure out what your property can produce in income so you know what you can pay for that property. As always, happy investing.