Selling land is usually a more complicated process than selling improved property. When you sell a property with a building, its use and value is established by the building on it. Before buying unimproved land, most buyers want to investigate what they can do with it to determine what it's worth. At the same time, the buyer pool for land is usually smaller than the buyer pool for improved property. With this in mind, selling land quickly requires unique strategies.
Calculate all of the costs to bring the land up to the condition you would like. What is it going to cost you to build out the property? That is the cost of acquiring the land, the entitlement, the cost of construction of the land, the cost of marketing to people to build it up if it is a retail space, plus the cost it takes to secure any money (i.e., loans)? You also have to factor in a reserve for costs associated with things such as air conditioners, wall coverings, and so on, says Veissi. "Those things have a shelf life, so, they are going to take x amount of time before they need to be replaced."
A type of local council zoning covers every home in a suburb. This is a planning instruction that tells developers and planners what can be built on different parcels of land. For most houses, the zoning is low-density residential – this means that only houses can be built on this land. But in some areas, high-density zonings are more common, or even mixed-use zonings. And zoning can change, if the plans for your suburb change. When a piece of land moves from low-density to high-density zoning, it has increased in value for a developer.
Hi Aracely – great question. You might want to contact the local planning and zoning department – ask them if you’re allowed to camp on the property and/or build whatever type of structure you’re planning to build. You’re right – most townships and cities (not the county necessarily) have different restrictions that come into play in different areas. You’ll probably find that the more rural areas have less and less restrictions, but generally speaking – you should always investigate, because some rules will most likely apply.
In addition, landowners may more readily find buyers for smaller subdivided parcels that are more affordable than one larger piece of land. Try to understand the market’s needs. Completing the lot subdivision up front saves the purchaser the time, effort and risk of doing it themselves, increasing the salability – and often the value – of the overall property.
If Mark has more than one piece of land to sell per week, or if he has exhausted his buyer’s list, he posts to Craigslist. “Craigslist is the 10th most trafficked website in the US,” he said. “We use a program called Posting Domination. I’m able to automate 124 postings a day, all at the click of a button. It’s unbelievable. So we sell everyday on Craigslist and we are building our buyer’s list everyday on Craigslist.”
The hard part, however, is getting your neighbours on board if that’s what you’d like to do. Offering a developer a larger parcel of land can be more profitable for them, and therefore more lucrative for you. This will require negotiations and time, possibly between yourself and your neighbours or between your agent and the neighbours. Be prepared that not everyone else will want to sell, even if there’s a big payout promised. Make sure that the extra effort will be worth the final sales result by comparing an estimated selling price for your home with what your portion of the sale will be if you sell to a developer.
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With the Arizona housing prices climbing up to pre-crash levels and single family homes being snatched up by investors to flip or rent back to millennials, do you think buying raw land now is the best strategy ? In my opinion, the fact that its hard to generate income off of raw desert land many investors pass because there in no rate of return. Million dollar homes are within a few miles of these parcels I’m looking at and i can buy a 2.5-5 acre parcel below 250k. I want to park my money in land because i know this area is up and coming vs risking it in the stock market. I would sit on the land for 10-20 years before building. Am i crazy or just see something a lot of other investors are missing out on? Also, small washes on parcels are not a huge issue right? I avoid anything that falls in a flood plane
Any ‘extraordinary’ costs relating to the development of your site. For instance, because of geological conditions the site – or part of it – may need more expensive foundations. If part of your land contains a site inhabited by rare animals, such as newts, the developer may be required to create a new habitat for them on a different part of the site and even provide ‘newt crossings’ to encourage them move to their new home. This is expensive and time consuming work and developers will ask for additional deductions, based on their view of the costs of this work. You need to be able to understand the calculations they are making and be reassured that they are fair and reasonable
But do not — and I repeat — do not try selling directly to a developer/builder. These folks, when dealing directly with a property seller, will base their typically lowball offers on a “fair market value” determined by appraisers they hire, who are typically agenda-led cronies. Such offers will almost certainly not take into account the recent increase in land values that all this upscale multi-tenant development is creating.
This has got to be one of best articles out there about land investment. Thank you so much for the advises. I live in San Jose, CA and I am also looking into buying land myself to build a residential home on. I’m somewhat skeptical about it as i’m very new to this whole process and afraid i might be stuck on a parcel that is not build-able or would cost too much to develop. The parcel i’m looking at is currently zoned “commercial”, however, the surrounding area is heavily residential so i wonder if this was a city’s mistake. To avoid troubles down the road, I plan to hire a professional for all the permitting and developing advises/estimate (if you know anyone in the Bay Area that provides this type of service, could you please refer?) but I just don’t know how much i can completely close my eyes and just sign wherever i was told by the professional. Any advise will be much appreciated.
Hi Seth – very helpful blog indeed. I have recently been given the opportunity to buy the 6-acre wooded lot, zoned residential, that adjoins my already-owned 3-acre lot for $64k. I know the terrain of the 6-acres quite well as I’ve had to chase my dogs all through it when they get loose. On the back end is a power line right-of-way, so certainly nothing will be built behind it. It does have a site cleared for up to a 4-bedroom home, a “proposed” well location, and although the site will not perk, the seller has an off-site discharge permit issued from the Virginia Department of Environmental Quality for a sewage disposal system. The owner will finance, with $998 down payment and $688/mo for 10 years, but that comes out to a LOT of money for 6 acres so I would likely come up with 40 percent down on my own, and pay off the rest with a personal, lower-interest loan. My concerns when it comes to land, especially as an investment: would the monthly payment for the land not be better spent to pay down my existing mortgage? Or, would the monthly payment for the land not be better invested in something with a higher rate of return? Of course, from a diversification standpoint the land may make perfect sense. I live (and the land is located) in an area mid-way between Washington, DC and Richmond, VA – – – an area that is growing like mad. I have a tough time believing that in the 15 years I have left until I retire I would LOSE money on the investment. And unlike a 401k or an IRA, which can disappear overnight should an economy tank, land will never be totally worthless. I would not actually DO anything with the land (aside from perhaps harvesting some firewood) other than to HOLD it for 15 years until I retire and leave this area.
This all boils down to how badly the developer needs your home, how much money he stands to gain by moving quickly and how robust the multi-unit housing market is. If the final offer falls a bit short of where you’d like it to be, factor in the negatives of staying: more construction noise, additional traffic and all the dough you’ll have to fork out to comfortably remain there. Realize, too, that condo prices, in particular, can be mercurial and turn on a dime if the greater housing market starts going south, which might give your buyer cold feet.
A large piece of undeveloped land may get you the greatest return if you subdivide it and sell each parcel separately. Have the land surveyed to determine which parcels are suitable for home building, which have other uses and which are likely to remain undeveloped. Keep one or more parcels for yourself if you still want an investment stake in the land, in case its value rises in the future.
Showing: Once a prospective buyer becomes interested in your property, they need a way to see it. Land professionals can do that in several different ways: by walking over it, using an ATV or UTV, or by SUV or truck. A potential buyer must see the property and all of its key features to truly decide if they want to purchase it or not. I find 90% of the time, if a property is well-priced that its location and features are generally what convinces the buyer to make the purchase. But to become convinced they must see it, all of it. Last week a residential agent asked to show one of my tracts that is nearly 300 acres. I told the agent I would be happy to show the property and that you have to be equipped to show the property. They asked, ”Do you mean, I would need a big truck?” This agent drives a Toyota Camry, and there are water bars on the property bigger than this car. You do not want to hire an agent that is unwilling or unequipped to effectively show your property.
An open listing generally brings the same result to a landowner. If you engage several agents to help you sell your property, then no one is responsible for marketing and selling your property. By making it open to everyone, you essentially make it for no one. Why would an agent spend money advertising a property that they have no reasonable guarantee that will produce a return on their investment? When they do, sellers often get the impression that the agent has nothing to offer and is not effective. Good agents will not do that as a standard practice.
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Today I had a land owner tell me to keep her property in mind, and that she would pay my fee if I sold her land. She said she did not want to list her land with an agent because the previous agent she used did not even bring her one offer during the time of their listing contract. That is understandable from her side, but the odds of me making that sell are pretty slim.
Another surprise to landowners attempting to subdivide their land is that the act of subdividing can raise any number of additional requirements and costs on your land. While your existing parcel may have been grandfathered so that it does not have to comply with some newer laws and regulations, undertaking a subdivision can trigger a new set of impacts and requirements.
Usage restrictions aren't necessarily a bad thing – they almost always make sense on some level. They're designed to help maintain order and support the value of each property in the subdivision. On the same coin… if you aren't aware of these restrictions before you purchase, they can also create some conflict with the plans you had in mind for the property. This isn't common for most land investors (because most people have no intention of using their property for purposes that don't jive with their surroundings), but even so – you should always make sure you understand what the rules are BEFORE you buy a parcel of vacant land. This will help you avoid owning a property that requires maintenance you don't want to do, or that can't be used for your intended purpose.
Offer owner financing. Land is usually hard to finance and if you're willing to take back a mortgage for the buyer, you'll expand the number of people who can buy your land. On the other hand, you're also taking the risk that the buyer won't make his payments and will default. To protect yourself, work with an attorney to draft strong legal documents that follow your state's laws and get as much money up front as is reasonably possible.
A really rough guideline that alot of spot-lot developers use is that the land should be somewhere between 10 and 15% of the sales price of the home. So, if the homes on ten acres were selling for $1 million, the developers were likely paying $100-150k for the lots. The home on your lot would likely sell for substantially less given the smaller lot size, so expect less for the land sale.
The listings on Fizber are pretty basic, and like most of the sites on this list – they're geared towards properties with improvements. The site gets a respectable amount of traffic (given that it's focused solely on the real estate crowd), but it's not quite in the same ballpark as Zillow or Craigslist. Overall, it's not a bad option to work with, especially if you're interested in blasting your listings out to the MLS as well.
On those notes, pay attention to who you’re likely buyer will be, and seek out those people. If the land is zoned for commercial businesses, make entrepreneurs and existing business owners your target audience. A real estate agent who is selling a flat property that gets a lot of sunshine may want to reach out to energy companies who are looking to build solar arrays.