Eric Metzger is CEO & Founder of MRLO Partners, a real estate investment fund that invests in high-end communities.
In today’s ever-evolving real estate market, the possibilities for profit are vast. From private to public investments, commercial to residential ventures—even mixed-use properties—investors have a wide range of options to choose from.
For those seeking to make a lasting impact and create generational wealth, I believe that focusing on land investment is the key. Beyond immediate financial gains, owning land offers the opportunity for long-term value creation and a lasting legacy. It not only has the potential for solid returns but can also add prestige and intrinsic value.
However, navigating the complexities of land investing requires careful consideration and expertise. Prior to making any investment, potential landowners must undertake extensive due diligence, ideally with the support of knowledgeable advisors who specialize in land investing. It is crucial to structure the deal in a way that aligns with the specific characteristics of the land and its projected value over time.
Different Land Types Require Unique Approaches
To make informed investment decisions, it’s crucial for investors to recognize that not all land is the same. There are seven distinct categories of land, each offering unique opportunities.
1. Raw Untitled Land. This is farmland or agricultural spaces with the potential to be transformed in many ways
2. Master-Planned Raw Land. Municipalities often design master plans that are representative of a vision.
3. Zoned Raw Land. This land is accompanied by pre-defined sets of permissions regarding use and development.
4. Preliminary Approved Raw Land. When it is preliminary approved raw land, it is already zoned as approved subdivisions or site plans.
5. Fully Approved Raw Land. This is for development since they’re approved by local governments.
6. Approved And Finished Super Pads. These are fully graded tracts of land ready for development.
7. Statement Properties. This type of land is often in the form of private, luxury communities with top-tier amenities.
Within each category, investors will encounter specific challenges and varying potential for rewards. It is therefore crucial for individuals to carefully evaluate their options. For example, a high-net-worth family may be drawn to a statement property due to its remarkable location and approval from local authorities.
Due Diligence Is Critical
When investing in land, it’s crucial to thoroughly research and practice due diligence in order to minimize risks and make the most of your resources. Zoning is a vital aspect to consider, for it determines a property’s future potential. Make sure to look into factors like current zoning, potential with current zoning, variances, rezoning possibilities and utility availability.
Another important step in due diligence is assessing the land’s utilities. This includes access to water, sewer, natural gas, cable, fiber optics and electricity. It’s necessary to explore beyond the surface and examine aspects such as the soil, environment, utility access, infrastructure/roads, visibility, topography and approval status.
Additionally, you want to evaluate the land’s location and its relation to the surrounding area. Consider the neighborhood’s demographic and economic characteristics as well as the availability of local amenities like schools, shopping centers and parks.
Structuring The Deal Is An Art
Crafting a successful deal for land investment requires expertise and finesse. After completing the due diligence process, the next crucial step is structuring the deal to protect your investment and maximize returns. Here are some common financing models to consider:
1. Seller Carry-Back Financing. Ideal when the land is owned free and clear, allowing for wrapping a second loan around the first if necessary.
2. Installment Sales. This option allows investors to make payments over time while gaining immediate ownership upon closing.
3. Lot Option Contracts. By making a down payment at a set price, investors secure the opportunity to purchase the property in the future while the owner continues to use it.
4. Seller Joint Ventures. Partnering with others can help share costs and profits, providing a mutually beneficial arrangement.
There are also other options available, such as legally structured cash contracts, option contracts and installment contracts. However, it’s important to consider the impact these may have on the title. To safeguard your investments and maintain your reputation, always ensure that these contracts are legally recorded. This not only protects your interests but also prevents the seller from making alternative arrangements that could jeopardize the deal.
In conclusion, making an investment in land can bring with it the added value of building a monumental legacy with the potential to impact the family for many years to come. It’s a life-changing decision that requires expert knowledge, guidance and support.
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