The current environment is favorable for those looking to buy land. In order to get the most bang for your buck, however, it is important to get a quality land broker early in the process, according to Hassan Jadali, CCIM, SIOR, principal, vice president, and Tiffany Wiegers, senior associate, both of Colliers Turley Martin Tucker.
In addition to helping you navigate the complexities involved with purchasing a piece of property, an experienced land broker can also provide guidance in determining the most opportune time to buy.
“Your profit is made when you purchase a piece of land, not when you sell it,” Jadali says. “You have to buy the right piece of property, in the right location, at the right price.”
Smart Business spoke with Jadali and Wiegers about buying land for investment purposes, the importance of working with an experienced land broker and how to reduce expenses during the holding period.
Why is land a good real estate investment in the current economic climate?
Under the current market conditions there are not many people buying land. There are, however, land owners holding on to the land they have to sell. This allows for stronger negotiations with the seller. Also, prices are down in some areas up to 30 percent from three years ago. For an investor with cash on hand now is the time to purchase land.
What considerations should be taken into account when buying land for investment purposes?
Land has a cycle like any other business. Investors must make sure they are not buying at the top of the cycle. Investors must also consider the impact of time and costs associated with zoning and government approvals. For example, an investor might get an unbelievable deal on a property at a premium location and then realize utilities aren’t available at the site, substantial grading is required and/or property needs to be re-zoned. When you add all of these factors up, the costs that an investor puts into the property start to accumulate.
Determining the holding period up front is a key factor as well. Many purchase a piece of property thinking it’s in a good location, but do not plan how long they are going to hold it and what it will take to hold it.
For example, an investor plans to hold a tract of land for five years, after four years they meet with the government agency to get specific zoning and the process takes an additional three years. Suddenly the holding period is significantly increased, which takes money out of the investor’s pocket.
What strategies are there to locate the best land available?
One must understand the governmental process and be patient. The majority of the time governmental approvals are necessary, whether it is a zoning issue, a conditional use permit or both. The average time for a land deal to close is nine months due to the contingencies and due
diligence with a land sale. It is not like a building inspection where one can take occupancy upon receipt of approvals. Because there are so many processes involved with land, it is important to hire an experienced broker with extensive knowledge in land acquisitions and dispositions. What people don’t realize is that it takes time and expertise to face and overcome the challenges associated with purchasing or selling a parcel of land. A broker who does not specialize in land may not be aware of all the potential obstacles. It will save time and money in the long run if a broker with land experience is hired over a broker without land expertise.
How can a land expert aid in the process of searching for and buying land?
Brokers specializing in land have market knowledge and relationships with land owners, appraisers and municipal leaders. A good land broker will research any future plans or improvements such as highways or road construction that might impact the property. These factors can add or take away value from the property.
How can one reduce expenses during the holding period?
First, try to find a temporary use for the site. For example, if you have an industrial site, perhaps you can rent the property to a trucking company to park its trucks or to an auctioneer to auction equipment. If the site is located on an interstate and has good visibility it might make sense to construct a billboard or rent it for temporary signage. Consider farming the land. Large pieces of property that are zoned commercial will be assessed with very high taxes; by farming the property taxes may be significantly reduced.
HASSAN JADALI, CCIM, SIOR, principal, vice president, and TIFFANY WIEGERS, senior associate, are both of Colliers Turley Martin Tucker. Reach Jadali at (314) 746-0370 or firstname.lastname@example.org. Reach Wiegers at (314) 236-5471 or email@example.com.