Lot & Land Basics (So Much Potential!)
Lots and vacant land can actually be a lot easier to develop than it would seem as a first time investor. The main things to know are what is the minimum frontage (length of road touching the property) and minimum housing plot size and you can start prospecting.
If you find a vacant piece of land zoned for residential real estate you have already cleared some of the largest hurdles with property development on a new piece of land. Ideally you would want to land to already be cleared of trees and debris. Trees can get expensive to remove, as well as heavy rocks. and other large debris. The goal is to find a piece of vacant land, void of any large trees, that is already road adjacent, and that falls within the towns zoning guidelines. This is a lot of developers dream. Being able to go into an already establish area and build a house without much heavy lifting. With a road right there and all utilities easily available at arms reach, any property developer would jump at an easy job like this.
Large developments also have their attractiveness as well. Often requiring more work on the investors end, these can often prove to be some of the most financially profitable projects. The issue is a lot of people don’t know how to properly value the land and lots.
How To Value Land
To start off you can call a local real estate professional and ask them what the cost would be for a completely cleared land/lot that is ready for development. This is your starting cost. With this price, you then stat subtracting all the costs needed to develop the area. Do you need to build a road? Is there sewers and water, or do you need to bring that in. Do you need to clear the land from trees and other debris? There is a long list of stuff which I will make another post about.
So you take your originally value of a buildable lot and subtract all of these other expenses from it and that is the price you can pay per lot. So a seller may think their land is worth $200k, but they don’t realize all the work that is needed and that the actually buildable value is only $50k. This is a bit more complicated but if done correct, the returns can be higher than other investing options.