Should Serious Commercial Real Estate Investors Buy Distressed Land?

Dec 11, 2017

Should you consider an investment in Distressed Land? Before we dive into that conversation, let’s talk about the appeal of land in general. When most investors think of commercial real estate, they rarely think of raw land. The truth is that land because it is limited and non-renewable, can be an ideal investment for a number of reasons.

●    Completely Hands-Off

If you’re tired of dealing with mediocre management companies, difficult tenants, or if just want to avoid the difficulties that come from owning an investment property, then the land is the ideal solution. There is literally nothing to do with empty land other than “buy and hold” (and pay taxes).

●    Very Little Competition

Perhaps fewer commercial investors are involved in buying raw land (as compared to structures), which means you could have very little competition. That leaves you free to find raw land where you see the potential for growth and development and then either hold it, or buy, sell, or lease.

●    Cheaper To Acquire

Raw land costs less than nearly any other kind of commercial income property. In addition, property insurance can be much lower, there are no utility bills to pay or mortgage payments (if you paid cash).

It may be more difficult to find financing for land. However, some landowners, particularly those who may have inherited the land, are cash-poor and are willing to use seller-financing, may be willing to talk in order to get the land off their hands. Private lenders are also a possibility, especially for short-term loans.

●    Good Appreciation Potential

Raw land is always needed, especially if you are careful to choose areas where the numbers show there is good growth potential. Land holds its value better than other commercial property types, so that “low periods” in real estate markets are much less likely to affect the value of what is essentially a hard asset.

On the other hand, a thriving economy brings numerous opportunities to buy, sell, or rent the land as you see fit. If you’ve done your due diligence and chosen land that is located in a growth area, and you can even continue to hold the land – the price should go up.

What Kind Of Land Should You Look For?

prime coastal areas

Land located next to prime coastal areas or areas ripe for growth is ideal for investors looking to buy distressed land.

Although the coastal land is few and far between, there is still plenty of raw lands available if you’re savvy enough.

Don’t assume that all raw land needs to be out in the boondocks or the suburbs; often inner cities contain pockets of land that may look unattractive to the outsider but prove a gold mine to the future-thinking investor.

You should also keep an ear out for land whose zoning has changed. This is especially true if zoning laws have been revamped to allow multi-family properties to be built on lots that were originally for single family homes only. Purchasing this land would allow you to sit and hold it, to develop your own properties, to rent the land, or to sell it to a developer.

So, What About Distressed Land?

Finding distressed land

Finding distressed land isn’t that much different than finding any other distressed commercial property.

You can certainly approach land brokers, but you can also check your county offices for foreclosure filings, tax lien certificates, for tax deed sales. You can also approach local bankers or mortgage brokers, or contractors and developers.

Don’t assume that raw landowners won’t be interested in selling either. There are plenty of landowners who have a lot of lands but aren’t making enough money to get by. Although they are land rich, they may be cash poor, which means they might be quite happy to have some of the land taken off their hands.

Other owners may have balloon loans coming up, or were unable to find financing for construction. These owners are motivated to sell land (and sell it quickly), which gives you plenty of opportunity and flexibility when it comes to closing the deal.

Whether you’re a newbie or an experienced investor, the distressed land is a worthwhile consideration for your portfolio. Its ability to hold value,  its potential for appreciation, and its easy manageability make it worth taking a second look.

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