Investment Land Feasability
- Land Location |
- How to Buy Land |
- Land Features |
- Investment Timing |
- Opportunity Costs |
- Community Acceptance |
- Single Lot Investments |
- Residential Lots |
- Speculative Lots |
- Lease vs. Resale |
- Building to Suit |
- Acreage |
- Acreage for Resale |
- Land Evaluation |
- Land Promotions |
- Land Bankers
Acreage for Resale in One Unit
In regions of the country where the greenfield land is fertile, very little acreage speculation takes place. Productive land is usually held by individual farmers or ranchers. On the death of the owner, the land is passed to family heirs. Speculation in acreage is most common in areas of the country where the land is relatively unproductive.
The value of land is not based merely on its productive capacity. Depending on intended use, location can become the key factor in determining value. Land speculators are not as concerned with soil fertility as they are with locational advantages or disadvantages that will affect the future desirability of the land for developers and/or builders. Accessibility to nearby major highways and communities; availability of water, gas and electricity; and proximity to natural and man-made amenities, such as nearby lakes, woods, golf courses or ski slopes all increase the profit potential of investments in raw acreage.
Speculators in unimproved greenfield land for sale range from the small investor, who buys 5 to 40 acres located on the periphery of an expanding community, to the large investment syndicates, which purchase thousands of acres to hold for future resale. Regardless of the size of the investment, however, the philosophy is always to buy right to net a large profit.
Large profits are often less than they appear to be. For example, throughout its holding period, raw acreage requires the payment of such basic carrying charges as property taxes, interest and opportunity costs. Although taxes on vacant acreage are relatively low, the compounding effects of opportunity costs must be included when analyzing the feasibility of an investment in acreage. Remember, there is usually no cash flow to provide offsetting income during the years between purchase and sale.
Assuming a property tax rate at a cost of 1 percent per year plus an opportunity (interest) cost of 9 percent per year, the value of the land will have to increase at least 10 percent annually just for the investor to break even when the property is sold. When an investor's desired profit rate and an appropriate percentage ratio to cover monies needed for the costs of a sale (for example, commissions, title policy premiums, legal fees, income taxes) are added to this 10 percent rate, required annual increases in property value of 15 percent to 20 percent are not unreasonable.
This rate of increase means that the property must double in value every five to seven years if the costs of investment plus a profit are to be earned. For example, even if the value of the land increases 100 percent over a ten-year holding period and the property owner sells for an amount twice what was originally paid, the annual rate of return would be only 10 percent (100% 10 years = 10% per year). At a 10 percent value increase annually, the investment may not yield an amount of return adequate to cover both carrying costs and anticipated profits. Thus, it is vital that an investor make an effort to identify future value-growth patterns by carefully investigating trends in local property values.
- Land Location |
- How to Buy Land |
- Land Features |
- Investment Timing |
- Opportunity Costs |
- Community Acceptance |
- Single Lot Investments |
- Residential Lots |
- Speculative Lots |
- Lease vs. Resale |
- Building to Suit |
- Acreage |
- Acreage for Resale |
- Land Evaluation |
- Land Promotions |
- Land Bankers
