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 builder of homes for $ 20,000 each. That means the land that cost you $ 100,000 will be sold 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 land in the rough, subdivide it, and sell most of the parcels to pay off your investors and loans, then build and lease the remaining parcels to obtain a practically infinite profitability. 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), is currently coordinating such a project in South Fort Myers. The end result will be a commercial park for heavy to light industrial use. Half of the required capital is obtained through a private syndication; the other half is financed by banks. The project consists of 30 acres that will be subdivided into 24 one-acre parcels, with the remaining six acres used for infrastructure (roads, surface water retention lakes, etc.). The developer will build the roads and draw water and sewage to each of the sites.
“Of the 24 lots available, we will sell 21,” says Densley. “This will allow us to withdraw all bank debt and return investors’ initial cash capital. We will have three lots left that we will develop and lease. The capital in those lots will be used for any financing that is required for construction. So, the proceeds. of the leases will provide investors with a return in perpetuity. ” The remaining three lots will be built according to the requirements of the tenants; the project does not include any construction specification by 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 suitable, reputable investor. Densley notes that the SEC defines an accredited individual investor as one with a net worth of $ 1 million or combined income of $ 300,000 during the past two years. However, he says, he could use the same strategy with a less formal structured partnership that would not include a Reg D offering and his investors would not have to meet SEC accreditation standards. Of course, before launching any project that involves raising capital, it is best to discuss your plans with your attorney to ensure that you comply with all applicable laws and regulations.
Densley says that this strategy can work with any piece 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 simply recoup your costs and then develop and lease the rest for cash flow or even for your own use, or you can sell more “parts” to create a short-term profit, still keeping some land. for long-term income.
“In terms of risk, this strategy is reasonable and identifiable to both the developer and investors,” says Densley. “With the project we are working on now, the only risk is to buy the land and bring in the roads and public services. We have done our homework, we know what the market potential is, so we are sure that the risk is low, however, 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.
