Real Estate Investing: Use This Land Development Strategy To Create An Infinite Return On Investment

One of the basic strategies used by land developers across the country is to buy a tract of land, subdivide it into smaller parcels, and then sell those parcels at a higher price per acre (or square foot) than the original cost of the land. extension. Here’s a simple example: You could buy a five-acre single-family zoned lot for $20,000 an acre, subdivide it into 17 quarter-acre lots (leaving three-quarters of an acre for common areas), then sell those 17 lots to a developer. houses for $20,000 each. That means the land that cost you $100,000 will sell for $340,000. But with a slightly different approach, you can recoup your investment and create a perpetual income stream.

Kent Densley, vice president of land acquisitions and sales for Whitney Education Group, Inc., explains the approach this way: buy the virgin land, subdivide it, and sell most of the parcels to pay off your investors and loans, then build and lease the remaining parcels for a virtually infinite return. As long as you own those parcels and buildings, they can generate income for you and your investors.

Densley, who also provides advanced land development training for the Wealth Intelligence Academy(TM), currently coordinates such a project in South Fort Myers. The end result will be a heavy to light industrial use retail park. Half of the required capital is raised through a private syndication; the other half is financed by the bank. The project consists of 30 acres that will be subdivided into 24 one-acre parcels, with the remaining six acres to be used for infrastructure (roads, surface water retention lakes, etc.). The developer will build the roads and bring water and sewage to each of the sites.

“Of the 24 available lots, we will sell 21,” says Densley. “This will allow us to retire all bank debt and repay the initial cash capital from investors. We will be left with three lots that we will develop and lease. The principal from those lots will be used for any financing that is required for the So the proceeds from the leases will provide investors with a return in perpetuity. The remaining three lots will be built according to the tenants’ requirements; the project does not include any construction specifications from the developer.

Investor funds for the project are being raised through a Securities and Exchange Commission (SEC) Regulation D offering that includes a Private Placement Memorandum (PPM) that explains the entire project in detail. It can be presented to any accredited and suitable investor. Densley notes that the SEC defines an accredited individual investor as one with a net worth of $1 million or a combined income of $300,000 for the past two years. However, she says, she could use the same strategy with a less formally structured partnership that wouldn’t include a Reg D offering and her investors wouldn’t have to meet SEC accreditation standards. Of course, before launching any project that involves raising capital, it’s best to discuss your plans with his attorney to ensure you comply with all applicable laws and regulations.

Densley says this strategy can work with any parcel of land when the sum of the parts is worth more than the whole. Although the project he is currently developing is for heavy to light industrial use, the technique can work on land with virtually any type of industrial, commercial or residential zoning. You can sell enough “parts” to recoup your costs and then develop and lease the rest to generate cash flow or even for your own use, or you can sell more “parts” to make a short-term profit while keeping some land for earn long-term income.

“In terms of risk, this strategy is reasonable and identifiable for both the developer and investors,” says Densley. “With the project we’re working on now, the only risk is buying the land and bringing in the roads and utilities. We’ve done our homework, we know what the market potential is, so we’re confident the risk is low, but the potential return is tremendous.”

Using this strategy is a straightforward process, Densley says. Find the land, get it under contract, do your due diligence and determine that your plans will work (hire a land use planner and engineering firm for this), and close the deal.