Mark Skillman of West Slope Properties in Oregon wrote the article below, “Becoming a Land Pro”. Mark is a Broker and Real Estate Manager with the firm and has extensive knowledge in land acquisition. If you are thinking of becoming a land investor, this is a great article. Whether it is land for sale in Alabama or in Oregon, the same general principals apply.
Becoming a Land Pro
For many years I have been involved as a principal, broker or consultant in buying and selling hundreds of vacant land parcels. Most of those were improved or entitled to one level or another then resold. In dealing with vacant land for so long I have learned a lot about what to look for and why, what potential pitfalls to avoid, what kind of improvements to make, and how to structure a transaction that’s mutually beneficial. There are not many books, guides or online information on the subject and the nuances vary greatly from one area to another and from one property type to the next. Let me share with you a few fundamentals that may make your experience of acquiring land easier and more profitable.
Begin with the end in mind: If you intend to buy and hold property as a long-term investment or leave it in Trust for your kids or grandkids then a plan for when and how to sell may not be so important. But if you intend to become a Land Pro who regularly buys and sells vacant ground for profit, then it’s critical to have an exit strategy long before you begin any acquisition. A well developed method for finding, buying, improving and selling property is imperative. For every project you consider you should carefully determine when, where, how and how much you will put into it and calculate a realistic expectation of how much in turn you expect to get out. I recommend creating a worksheet that allows you to put your business plan in writing so that you can estimate, record and compare all of your costs and revenue. I use a detailed cost vs. return analysis spreadsheet that I developed by trial and error over many years and have found it an invaluable reference tool to help isolate mistakes and apply accurate figures to proposed new projects.
Find your Niche: Finding a market niche is the best way to fast-track your land business. Within the scope of vacant land there are many property types (hunting, forest, horse, farm, ranch, recreation, destination, development, desert, beach, vineyard, cabin, cattle and orchard, just to name a few). To be sure, there is crossover in many of these land types but having a specialty and a known farming area to work is a good starting point and will provide you direction and focus throughout the process. I think it’s important to find something that fits your personality type. If you love horses, for example, make horse properties your niche. You will be able to do what you love, make money along the way and all the while provide a valuable service to other like-minded people.
Do your homework: There is no substitute for due diligence. Knowledge is the most valuable commodity you can possess. A thorough understanding of both general and specific market conditions will greatly enhance your chance of success in the land business. Good research and study will reveal what locations are best and why, where the deals are to be had and what property types are most attractive. You should have a working knowledge of the inventory of land available for sale in your area (your competition), the absorption rate (how fast land is moving), the average selling prices, and what trends are affecting the over-all market. You should determine what venues tend to move faster than others and why and what value-added improvements facilitate sales. In our area, for example, a vacant parcel of ground in the south end of the valley will sell faster than anywhere else because of its proximity to the cultural hub. And a domestic well will add far more value to a property than the actual cost of drilling; an opportunity to capitalize on. There are unique underdeveloped attributes to every market and property and these should be sought, understood and utilized. In order to do this you will need to become a sponge for information. You should talk to anyone and everyone in the industry who will share ideas with you. Spend the money to join investment clubs, attend seminars and buy books on real estate and land development. Even if you only get one small new idea from any source and the rest of the information is useless, I believe it’s worth it.
Build a team of professionals: You cannot be successful going at it alone. No matter how good you get in the land business, there will always be professionals with more specialized skills than you and they will be critical to your success. I have a group of trusted title examiners, escrow officers, attorneys, surveyors, lenders, site development contractors, land use consultants and real estate brokers behind me on every transaction. I rely heavily on them for their counsel and input. I question them constantly and welcome their ideas. Find out who these players in your market are and get to know them. Take them to lunch and establish a rapport. Show them that you are serious about the business and don’t hesitate to compensate them for their services. Real estate is a team effort.
Pick your piece of paradise: Only after you have become informed, built your support team and developed a business plan within a niche are you ready to actually buy a parcel of ground. You should find something that ultimately will attract a broad base of buyers. Amenities like views, creeks, ease of access and solid neighbors are universally appealing. This is a priority when I buy property. True, the property I acquire is usually raw and unappealing. However, I know that upon transformation it will emerge with a value-added allure that has capitalized on its natural features (and will usually include some man-made ones as well like an arched driveway, vinyl fencing, or a developed pond). I try to see beyond the current condition and visualize what the finished product can and will look like in the eyes of the buying public. I don’t like to buy property, I like to buy potential.
Structure the transaction to work for you: You will make your money in the buy. In other words, if you don’t pay wholesale or below when you purchase property, no matter what sort of improvements you make or how long you are willing to wait for the market to catch up to you, you will likely lose money in the end. It’s therefore essential to become a good negotiator. Don’t let emotions or personal attachment to any given property cause you to make a mistake. This is just business. A clear commitment to the big picture based upon your exit strategy is essential. Here are a few pointers to help you get the best deal you can.
1. Don’t pay retail. You must negotiate up-front to compensate for future unforeseen inevitabilities and disappointments associated with nearly every land transaction.
2. Do not close the transaction until all the problems have been resolved. If there is a boundary-line dispute with a neighbor, lack of proper access, zoning issue, water or sewer question, or anything of the sort, you need to discover and resolve it prior to closing in the form of a contingency. In many cases you can use these “discoveries” as negotiation points with the seller to get an even better price or by getting them to pay the costs in escrow.
3. Maximize your leverage. If possible get the owner to “carry the paper” on your transaction. Banks are reluctant to lend on vacant land anyway so if you can get a seller to agree to an owner carry with a minimum down payment on favorable terms it will allow you many options down the road in assigning to a new buyer, wrapping for a profit, discounting for cash and a whole slew of other opportunities. The “paper” business is an industry unto itself that we can’t even begin to address in this context.
4. Start small. I paid $7000 for my first piece of property. That was really cheap even 20 years ago. I felt I could not get hurt at that price and it was a real confidence booster when I sold it a short time later netting twice what I paid for it. Do a few small deals first just to get your feet wet and see if the business is something that fits you.
Get it sold: This is where the rubber meets the road. Once you have skillfully acquired and improved your parcel you are now ready to reap the rewards. If you have done your job correctly you have positioned yourself in the market for a quick sale. You are providing a great piece of property to a deserving buyer. It will be easy for them to make the decision to buy your property over the competition because you will have it priced right, they can get out on the land and see its natural beauty, and all of the scary unknowns about buying vacant land have been eliminated ahead of time. They will be ready, willing, able and excited to buy it from you and take it to the next level. You are simply providing the American dream that everybody wants and are getting well paid for your service.
Let the land speak to you: Going beyond all the technical aspects surrounding a land transaction, at the root, I let the land speak to me. It will tell me how it should be developed. I know this sounds nebulous and esoteric but it’s true. I will go out on a piece of property I’m acquiring and just sit, listen and observe what natural features and beauties are waiting to be unlocked. What comes to me is how, where and why I place the improvements I do. If there is a nice tree in a clearing, for example, I might make it the focal point of the homesite location. Or, I might make a driveway gerrymander through the oaks instead of just running straight from A to B. There is something unique to each piece of ground and when I discover what it is and enhance it, I’ve just created value. This is not science or business. This is an art form. This is where I find my greatest joy and satisfaction in land development business. I can’t paint, sing or play a musical instrument but I can find the greatest attribute to any given piece of property and capitalize on it. This is my contribution and purpose.