Fix and Flip:
When it comes to a Fix and Flip, how can you make money? You can buy a property that needs to be rehabbed. Let’s say that the property can be subdivided into additional lots. While you are working on the rehab, you can work on subdividing the land to either flip or build on.
With a lease option, you can get the property under contract. While it is under contract, you can work on several different methods of land development.
Buy and Hold:
Much like a lease option, if you are already holding a property, you can easily work on platting, subdividing, entitlements, rezoning, engineering, etc. Every entitlement that you add to the property should increase its value in one way or another.
There are undoubtedly other ways to get creative in putting together land development deals. You are only limited by your ability to be creative.
Why are running numbers so important when it comes to land development? Well, running the numbers is the only way that you can understand the profit potential. Furthermore, in working within our communities, we will have to use our numbers to explain our ideas or vision, as the physical assets are not yet constructed.
The factors when running numbers, regardless of how you are investing in real estate, are as follows.
- Cost of property
- Closing cost associated with property
- Cost of improvements to the property
- Cost of maintaining property
- Yearly revenue
* Total cost divided by total yearly revenue gives you the Cap Rate
- Capitalization rate is a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by an asset and the original capital cost.
Land development is a complex process involving evaluating, planning, engineering, and construction of improvements on a piece of land based on codes and regulations set by the municipality and regulatory agencies.
Having a strategy and knowing your numbers will be necessary as you look to take down these deals!