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Posts Tagged ‘Profit’

Commercial Real Estate – Points For Profit

Thursday, July 29th, 2010

WHAT MAKES LAND WORTH MORE

Location: Land that is close to where people live, work and play is worth more than land out in the middle of nowhere.

The approval to build: The reason that land is developed is so that it can generate more income. Land that is used for farming brings in much less than land that has an office building or townhouses on it. When you change the zoning or take a piece of land through the approval process, it becomes more valuable simply because you now have the ability to build and create more income from the land.

Availability of utilities: in order for land to be improved, you need to make sure that the water; electricity, gas and sewer systems are available.

Land that is several kilometers away from these services will nee hundred of thousands of dollars spent on additional costs to develop the property. So, land that is next to existing utilities or has them in place is worth much more.

Are you in the right market?

When you are looking for the right place of land to develop, you need to pay attention to what surrounds the piece of land that you are interested in.

– Is the area growing and population coming in?
– What kinds of residences or businesses are already in place?
– What are the demographics of the area?
– If you there a demand for what you intend to do?

In other words, assess the local economy; it needs to be strong for you to make the venture profitable. What you are looking for is the right spot to put up houses, units or apartments etc. To be successful it is also important to know your exit strategy before you get in. Typically for land development, your exit strategy would be to sell to another developer or a builder.

The three Ps for successful projects

If you want to be successful in your land development, you need to follow what I call the three Ps.

HERE THEY ARE:

1. POSITION

What is your position in the market place? Is there a demand for the type of development that you are contemplating? You can have the best project in the world, with the prettiest architecture, but if you can’t sell it over time, you are wasting your time buying it at all.

2. PROFITS

What profit is the land likely to make? This includes making a great return on your time, energy and personal capital that you contribute to the project. In addition to money in your pocket, most good-sized land development projects end up using bank financing, private investors or a combination of the two. Both entities want back good rates of return.

1. POLITICS

What does politics have to do with land development? Well, almost everything. Why? Because before you even break the ground to build anything, you will need the approval of several governmental entities, including local council, department of housing, department of lands and main roads.

Before you jump in with any real estate development project make sure that you understand what you will eventually do with the property. You can sell it to another builder, hire a builder and manage the project or build it yourself.

A couple of good places to invest in land is either right in town or even in the direction in which the town is expanding and wait for the town to come to you! The path of progress is often determined early in the towns’ development.

So consider the path of progress points, migration and new construction when deciding whether to pursue a project. One way to reduce your risk with land development is to look for where businesses are going because every other piece of land that is developed helps to attract more people to the area. If you change a property zoning you can dramatically increase its value. The challenge is making sure you meet the community requirements enforced by the local council and/or state agencies.

When trying to decide what to build on your land, be sure to look at the surrounding neighborhoods to see how your project will fit in. The value of the land is directly related to the income that it produces.