Fast Cash With Land: The Secret Weapon Of Land Investing
BATTLECALL GUEST EXPERT: Robert J.
Abalos, Esq., InvestingInLand.com
The secret to making Fast Cash by investing in
land is very simple to understand. Here's how to do it.
When most people think of investing in land, they think of big real estate
developers buying huge tracts of land for shopping malls and subdivisions of
homes.
Or they think of the political games they see in the movies where the cronies
of crooked politicians get inside information about where a new highway exit
ramp or some other public construction project is going to be built and then
make a quick killing by purchasing all the land in the area from unsuspecting
owners for next to nothing and reap windfall profits in a matter of months.
Or even some people believe the age old advice you can find in books and hear
from the elderly farmers still cultivating their land on the outskirts of every
city in the world that the way to make money in land is to buy property in the
direction of a city's natural growth and wait years, even decades, for your land
to become more valuable because of the increased need for development tracts for
new housing developments and shopping malls.
Do people make money using these three strategies?
YES.
But this is NOT how you really make money with land. Not the
quick and easy way I use and investors just like me.
Of course, you can make money being a large scale real estate developer but
few of us will attempt such major capital intensive projects like building
subdivisions or shopping malls.
Any money-making strategy that involves using inside information, possibly
breaking the law, and cheating innocent sellers to make quick profits is wrong.
Enough said.
And any investing strategy that requires years or even decades to POSSIBLY
turn a profit is absurd. Especially when your profit is dependent on the actions
of local governments and the "growth" of cities. This really isn't much more
than pure speculation, not investing in any real sense of the word.
Then how do you make quick profits with land?
- You buy land and make it more valuable.
- You find someone who needs your land.
- You sell it to them, quickly.
- Or develop the land yourself.
- And buy more land with the profits.
Simple enough?
I've been a practicing attorney and land investor for nearly twenty years and
it amazes me that people buy land and then hold it passively, doing nothing with
their land, paying mortgage costs, property taxes, and other expenses on their
purchase, and have no clue how to make a profit with their purchase. Why buy it
in the first place? They buy their property with the notion of selling or
developing their land but with no set plan as to WHEN or HOW or WHY.
My question is obvious.
Why buy land unless you know someone who wants to buy it? Or unless you know
you yourself can quickly develop it?
In land investing, speed determines your return on investment,
not the property itself.
Take, for example, a hypothetical piece of land that can be bought for $1,000
and ultimately will have a net value of $2,000.
The profit potential of that piece of land is fixed. It can only be
subdivided so far, or developed in a limited number of ways. The amount of money
that can be squeezed from that parcel is finite, a definite sum that an investor
can figure to the penny.
It is the speed at which that profit can be earned by the
investor which determines their yield on the land purchase.
If that land can be bought and sold in one year, the profit is 100%.
In two years, it becomes 50%
In four years, it becomes 25% and so on.
But what if that piece of land can be bought and sold within a month? The
yield is then 1,200%. Within a week? 5,200%.
Time literally is of the essence when buying and selling
land.
No one really makes big money in land by holding it for years and years
waiting for it to grow in value. That's a fool's game unless you own land that
(A) provides you with enough current income to cover ALL your holding costs and
(B) is land where your tax basis is zero, meaning you own the land for free and
have no capital invested in the land. Most people have land investments that do
not meet these two requirements.
An example will illustrate why time determines yield much more
than any characteristics of the land ever could.
I once knew a farmer in my area who bragged he bought his farm in 1965 for
$12,000 and sold all his land to a developer in 1999 for two million dollars.
Most people will tell you the farmer did really well. He's now a rich man. But
did he really make the killing he suggests?
Any financial calculator will tell you the farmer earned 15.14% per year on
his purchase. ($12,000 compounded over 34 years to $2,000,000) But is that his
real rate-of-return?
No. The farmer had to pay 34 years of property taxes, special assessments,
mortgage interest payments----including $20,000 in property taxes alone in the
last year he held the farm. (Based on a 1% tax rate.)
Using IRR ("Internal rate-of-return") analysis, we calculated that this
farmer really made 8.8% per year on his investment. And that sum does not
include the following:
- All the money he put into the farm in maintenance, improvements, and
repairs.
- The Federal and State income taxes he will owe on the sale of his property.
- The real estate commission he owes on the sale to the developer. (Just 3% of
$2 million is $60,000 right off the top.)
- The loss of income when he stopped farming and prepared his farm for sale.
- His cost of buying a new home and relocating and many others, not even
figuring his loss to inflation over more than three decades of ownership!
This farmer-turned-investor would have literally done better financially by
owning a U.S. Treasury Bond and reinvesting the interest in more bonds every
year than buying that farm. He would have earned a safer return, paid fewer
costs, lower taxes, and would not have to put money into repairs and
maintenance.
Why did the farmer do so poorly with this investment? Time
worked against him!
It took this farmer THIRTY-FOUR YEARS to realize his profit. That is an
extreme amount of time but many books and lecturers argue exactly for this style
of land investing. Buy land and hold it. Wait for development to catch up with
your land. It just doesn't work!
Assume the same farmer had bought the same farm for $12,000 and sold it just
one year later for $15,000, a mere $3,000 gain. What is his rate-of-return?
22.52% with fewer holding costs and his profit returned super fast. Compare that
to the 15.51% the farmer was so quick to brag about!
How does an investor make fast cash profits with land? It is
very simple.
- Buying land at low prices, always at non-retail prices, and always as
below-market as possible.
- Adding value to the land, not by waiting for cities to grow, but by making
the land more valuable, unique, and a more important asset to SOMEONE.
- And quickly selling the land, for cash or for a note that covers the initial
purchase price and provides the investor with a nice monthly income as a profit.
- Or developing the land yourself, building a home for resale or rental
income, a commercial property or whatever can be built on the land owned.
It isn't very complicated, actually.
The key is SPEED. Buy and sell quickly.
A $50 profit on a $1,000 investment is 5% per year but 60% over a month and
260% over a single week. It is the same $50 profit but how quickly you can earn
it is what separates poor investors from wealthy ones.
If you are a new investor thinking about land for the first time or an
experienced real estate developer or home builder with acres of land in your
portfolio, always think of SPEED. How quickly can I realize my profit and move
on to the next property? Holding land for the long-term is much like a
"buy-and-hold" philosophy in the stock market. It works---but only sometimes. It
depends on the stock you pick and so many other factors that the longer you own
the asset, the more you are really guessing what it will be worth long-term. A
bird in the hand is worth two in the bush for a very simple reason, one quite
easy to understand.
You don't make it with large amounts of capital. Or with shady political
connections or secret deals in smoke-filled rooms with your brother-in-law on
the zoning board. Or by paying good money for land and hoping that decades from
now your farmland will be ripe for a new Wal-Mart Superstore.
You make money with land by finding bargains and realizing your profit
quickly so you can pyramid your profits into larger and more numerous pieces of
land. Buying cheap and selling dear----FAST. And land offers you many more
opportunities to do just that than any other investment, including improved real
estate like single family houses, apartment buildings, or shopping malls. Those
investments are great providers of MONTHLY INCOME but not great generators of
QUICK CASH PROFITS.
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