Raw land development is a “blue ocean” opportunity for entrepreneurs, especially in light of the impending housing crisis.
But before you try to capitalize with a land grab, you should know about factors that could impede your success.
Land Has Never Been More Valuable
Raw land is a timeless asset, because, as the old adage goes, “They’re not making any more of it.” This is especially true during housing shortages – like the one looming on the horizon. In fact, according to the National Multifamily Housing Council, Americans are projected to face a shortfall of 4.3 million apartments by the year 2035.
In light of this impending crisis, land developers are starving for raw land with development potential; it is now, and will remain, the essential first ingredient for the apartments and homes Americans will desperately need in the near future.
Now, it would be natural to assume that such developers would deploy a network army of acquisition agents to scoop up every available acre in an attempt to meet said demand. Yet many of them simply don’t have such a network – at least not one that’s looking for off-market deals. Paradoxical as it sounds, their efforts are focused solely on more expensive, and more competitive on-market deals.
Herein lies the major opportunity for the cunning entrepreneur.
As a 20+ year veteran in the homebuilding and land development industry, I think this need represents a “blue ocean opportunity” for business professionals with a trained eye for raw land with development potential. The key here, however, is having a trained eye.
So, before you take off on a solo crusade to capitalize on the land grab by finding and selling plots to developers, it’s worth considering all the factors that could impede your success.
The Land Must Actually Be Developable
Take a hypothetical plot located on the outskirts of a city with booming population growth, a strong job market, and national homebuilders actively involved in the area. All of these market conditions make such a piece of land appear very, very attractive. Careful, though. There may yet be other factors at play. Consider the following details, for example:
- Zoning and Land Use Restrictions– City and county zoning laws sharply define how land is developed based on the overall needs of a given jurisdiction. Even within the broad category of residential zoning, city/county requirements can make a plot of land unattractive to home builders by, for example, limiting the density of dwelling units.
- Access and Easements– How will the property be accessed by families if it were a typical neighborhood? Is it currently landlocked by a neighboring property? Does anyone else have legal permission to access the land as-is? These details can play a major role in determining a plot's development potential.
- Utilities– How far is the property from public water and sewer lines?
- Environmental Issues– Is there a creek running through the property? Are there steep slopes, wetlands, or power/gas lines running through the land? These factors can eat up huge swaths of the total amount of ‘workable’ ground on a given lot.
- Topography– The land’s topography can impact utility delivery, i.e. if the sewer can gravity-flow and whether or not the city will allow a pump to be built. Flat property is ideal, but if you don’t have flat land, you have to consider the value of the land and the associated costs to make it developable.
Overwhelmed? Don’t be. There is good news in all this planning. In terms of risk mitigation, all of these considerations can be assessed before any money is spent.
Risk Tolerance & The Burden of Debt
Now let’s say that everything checks out and you’ve got a gem of a plot. You calculate the value of the land and have secured a purchase agreement with the property owner. What comes next is a feasibility study, followed by the land use approval process, also known as “entitlements,” where your preliminary plans must go before city/county officials. If everything sails through, your final step is to submit construction drawings and secure permits.
Here, you’re very close to owning the land, which puts you in a position to either sell it as-is or do horizontal construction in preparation for those hungry homebuilders. But this is where the true risk comes in. Because if you’re not going to purchase the land outright, securing financing can be tricky and the debt load is substantial. Consider the actual construction costs to tear down trees, grade the land, lay pavement, etc.
You’ll also have to insure the property while you look for a buyer, and any ongoing maintenance costs are on you. These high price tag items are both necessary and unavoidable before you’re in a position to capitalize on your investment. And, if you don’t know how to connect with homebuilders and design an attractive deal for your asset, you could be eating said costs for quite a while. Depending on the size of the land and its development needs, this could easily add up to six or even seven-figure debt.
But there is a safer alternative… One that comes with far less risk, and significantly less financial investment.
Become a Land Acquisition Specialist
Reaping substantial financial returns while meeting the needs of the impending housing crisis doesn’t actually require that you have to become a land owner. My VestRight training program teaches you how to find off-market land with development potential, project manage the entitlements approval process, and sell the finished project to a homebuilder “shovel-ready” – without ever assuming risk, touching the dirt, or doing any construction.
Translation: you still have the potential to make significant returns from land without taking on the financial and emotional stress of ownership. How? Remember that I mentioned the importance of a keen eye for development potential? That is what development companies will pay YOU for. To be their market detectives. To find, source and bring them plots with development potential. Companies will pay you generously to save them the time and resources of scouting these plots themselves.
This is not a get-rich-quick scheme, rather it’s a niche business model born out of my 20+ years as a homebuilder and land developer. To be a successful Land Acquisition Specialist (LAS), you’ll need the willingness to learn, adapt, and grind. You’ll also need patience, as most deals take anywhere from three to eighteen months to see completion.
What makes the job of a LAS so attractive is that YOU can determine where you exit, and therefore where and how much you’ll stand to make from any given deal. Plus, you have virtually no startup costs; the work can be done from anywhere as long as you have wireless and a laptop.
In the VestRight mentorship program, we teach you all the skills you need to find, evaluate, and analyze off-market parcels that developers pay a premium for. To learn more about this innovative program, click here to book a strategy call today.