Most people believe that when investing in raw land that the property has to be in the path of growth or it has to have some development potential. The truth is that there is niche in land investing that very few people are taking advantage of. Before I get into the niche itself, it is important to understand what I am talking about when I say raw land. I am talking about land that has NO development potential and IS NOT in the path of growth. I am specifically talking about property such as farms, ranches, mountain land, timber land, hunting land and just recreational land in general.
I have been involved in over 1,000,000 of raw land transactions and focusing on these type properties usually means there is virtually no competition from other investors. Why is this? Think about it this way. If there is a person who has a 1,000 tract of land that is 1 hour outside of a larger city and they are asking $2,000,000 or $2,000 per acre for the entire property, how many potential buyers do they have? It is a very small buying pool because most owners do not want to split the property up because they could be left with pieces and not sell enough to actually „get out“ of the property. So, what the seller is looking for is that one person who is willing to spend $2,000,000 to have a place to get away to on the weekend or to have a place to hunt. Now do you see what I mean about a small buying pool?
SO how can you quick flip a property like this and make money when the owner hasn’t been able to sell it a year or more? You are not going to look for that one buyer, you are going to find around 30 or so buyers that can spend about $85,000 each. Now, look what you have done to the potential buying pool. You are no longer looking for just millionaires because we have structured the property so that someone with $85,000 can buy a piece.
How do you structure the property to get these buyers? There are 3 simple key principles we use to accomplish this. First, we are not going to buy the property because we want to limit our risk and not everyone can afford to purchase a $2,000,000 piece of land. We are going to control the property using an option. So let’s assume we can option the property at $1,800,000. We will then do a dual or simultaneous closing when we sell the property so that we won’t have to take cash out of our pocket to do this deal. Second, we are going to split the property into smaller tracts (only on paper, no surveying) and offer it to the public in different sizes. This allows potential buyers to buy what they want. They can combine several tracts together to buy even more. Third, we are going to do this using an auction. This accomplishes several things. It will allow us to offer the property in multiple tracts like the 30 mentioned above but also lets the buyers decide on how much land they want and they have to compete against the other bidders in order to buy it. We also get offers on all the parcels in an hour period at the auction.
When you total up the prices bid at auction (example: as referenced above, 30 tracts at $85,000 each average) that comes up to $2,550,000. Your profit is the difference between your option price of $1,800,000 and the total sales price of $2,550,000 which totals $750,000 in profits. Not bad considering that in many cases you will have less than $1,000 at risk. Large tracts of raw land are one the last untapped real estate investing opportunities left, so why not take advantage of that.
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Source by Mike Fisher