Are the undeveloped properties you owned ready for development that they can benefit from Capital Improvements?
You can use some capital improvement if you own vacant land that you have just been paying taxes for over the years. Just as it’s generally more cost-effective to own your home rather than rent over the years, so it is with owning some significant improvements to raw land before marketing it. You acquired the property a reasonably good time ago and held the property for many years. Are you noticing the increase in value is steady and about the same as inflation?
Better yet…Do you have any idea what your vacant lot is worth?
Are your lots “Bankable”? You’re a more sophisticated investor who understands the more complicated aspects of commercial leases and has a higher tolerance for risk because these properties can have longer intervals of vacancy or increased tenant improvement costs plus rent concessions. Of course, just like with residential income property, only invest when your analysis of your local market suggests that it’s a good time to buy. You will learn more during our first F.O.C.U.S. Consultation.
For prospective real estate investors who feel tenants and building maintenance are ongoing headaches, buying undeveloped land may appear attractive. If you buy land in an area that’s expected to experience expanding demand in the years ahead, you should be able to make a tidy return on your investment. This is called buying in the path of progress, but of course the trick is to buy before everybody realizes that new development is moving in your direction.
Do your homework. Ideally, you want to buy land in an area that’s attracting rapidly expanding companies and that has a shortage of housing and developable land. Take your time to really know the area. This isn’t a situation in which you should take a hot tip from someone to invest in faraway property in another state. Nor should you buy raw land just because you heard that irresistible opening bid price advertised on the radio for the government excess land auction down at the convention center this Saturday.
Ram bought some Tax Abatement property in Washington, DC. It was quite clear that the previous owners let the District of Columbia claim the properties by ignoring the annual tax bills for a very long time. There could be a lot of reasons why land lots are sold in such a fashion. Clearly it was not because the property would not worth anything much to be cared about. After all it is in the CAPITAL CITY of the Free World! The reasons could be a myriad of suppositions. Especially when the asking price is significantly lower than the average rate of surrounding prices, however, Ram did not look further than he could afford to win the auction – so he purchased them.
Now that Ram has to dole out the tax payments each year he is trying to figure out what to do. Land without improvements only gets attention for a subset of a subset of a subset of the real estate consumers market. So every year I can expect Ram to call and grumble about it to me. You might be asking yourself, “What is the problem?” Ram is in contact with Rodwell Building Services and still have a problem with real estate improvements, you may recognize. But remember, Ram just likes to grumble and the lots won’t automatically become marketable without a FOCUS Consultation. This has been going on forever.
I am more familiar with Ram’s father and it is through his dad’s recommendation that we started discussing the vacant lots they hold in DC. The problem is almost epidemic. There are plenty of property holders who learned that investing in real property was the safest investment and bought property to hold. They did not understand that holding is not enough to beat inflation. While the property value will increase almost parallel to the cost-of-living, one holder still has to make significant and valuable improvements to realize a substantial gain. Vacant land is a very lucrative investment if you are willing to hold and improve then sell.
Know all the costs. Tally up your annual carrying costs (ongoing ownership expenses such as property taxes) so that you can see what your annual cash drain may be. What are the financial consequences of this cash outflow — for example, will you be able to fully fund your tax-advantaged retirement accounts? If you can’t, count the lost tax benefits as another cost of owning land.
Determine what improvements the land may need. Engineering fees; subdivision map and permit costs; running utility, water, and sewer lines; building roads; curbs and gutters; landscaping; and so on all cost money. If you plan to develop and build on the land that you purchase, research these costs. Make sure you don’t make these estimates with your rose-tinted sunglasses on — improvements almost always cost more than you expect them to. (You need to check with the planning or building department for their list of requirements.)
Locate RodwellBuildingServices™ for more guidance directly. We can register you into our FOCUS Consultation program and provide you with lifetime membership in real-estate improvements.