Buying and Developing Rural Property
When looking for property to develop, the number one consideration is: what is the market in the area you are considering developing in. (This is also good to know if you are just looking to buy a personal home site.) You need to know what property is selling for in the area you’re looking in to develop….and don’t pay too much for the land tract you are going to cut up into home sites!
The second consideration is determining your cost ratio. What can you expect to sell your developed home sites for? What is the market in the area? Are people living on 2 acres, 5 acres, etc? You have to develop what the public wants to buy (and afford); meaning, know your market and the people that live in it.
For example: a 2 acre site might sell for up to $14,000 per acre; a 5 acre tract might sell for $10,000 per acre…because of the total sales price. People who want to put a mobile (manufactured) home on a piece of land might not be able to afford $50,000 for land and put a $30,000+ mobile home on it. Home building sites are altogether different. People will pay a lot more for say a 5 acre home site to build on because the home is going to cost $100,000+ these days. An example of this is a developer paying $250,000 and $300,000 for two residential lots. Then he builds a $1,000,000 to $1,500,000 home on each lot, selling each and making a nice profit.
The market liked by most land developers is the rural, unrestricted (no covenants) home site, because they find that the majority of buyers want unrestricted land that they can put a mobile home on, have horses, build a workshop out back, etc. Again, it just depends on what market you choose to be in.
Rural land developers tend to work with county governments since the majority of properties are located outside most city limits, in various counties. County governments tend to be a lot less restrictive in their requirements and seem to encourage rural development since that increases their tax bases, whereas most towns, cities, and even some counties are overbuilt, under taxed, and tend to discourage or highly restrict development. (Their argument is that development overloads streets, traffic, schools, etc.).
Most towns, cities and counties are so restrictive that they have now started zoning out in some counties, which has not been done in many counties before, to limit or discontinue some kinds of developments. These are counties that in times past may have gotten a lot of development, but now are for the most part avoided by developers. Many at one time encouraged and also needed the development, but the governments in the counties make it too hard on the developers who therefore avoid them.
The first step in developing rural property is ALWAYS know your market. Serious mistakes financially can be made by not researching what property in a given area will sell for, what it can be bought for, how far should you go in developing it, etc. A common mistake is a person deciding to buy one or more homes to flip (remodel and sell for a profit) and then spending too much money on the homes in the remodel therefore pricing them well over the average home in the area. In some cases they end up being rent homes. This is a prime example of not researching market sales in an area.
The second step in developing property is to visit the county permit and zoning departments in the county you would like to invest in. Get to know them and what their requirements are for what you’d like to do. These are the ones that will approve or reject what you want to do! Even if you do a lot of repeat work in a given county, still go visit them to show respect for their position and to be sure that the requirements haven’t changed. And they do change. When you visit them, take all the data you have, location, survey, legal description, etc., and what your final plans are for the property. This makes their help for you a lot easier. Another important contact person is the land surveyor, an invaluable person to know. If at all possible use the same person as well as the same closing attorney on all your transactions; they know you and what you do best and you get to know them and their capabilities.
Although some agents may have a fully staffed office, it does not take a staff of people to buy/sell/develop property. Like the others mentioned above, these people do not have to be on your payroll as such. They are paid as they do work for you. An answering service that acts as secretary can be helpful. And finally a good CPA/accountant who understands development is important.
Using the same people to help you develop your property has its advantages. Yes, you might be able to in some cases save a few dollars by “shopping” prices with competitive businesses, but the value of building close relationships with sub-contractors and other sources is worth the investment. Going back to the same people, they know what your interests are and they know you will be coming back to them time after time.
The old real estate axiom is “location, location, location.” The new axiom is “market, market, market.” Today’s rural developer makes it clear that he buys land but also that he is available to other real estate agents to call him if they want to sell their land or land listings. Other sources used in buying land are reading land listings in your local paper. This should be done every day. It is not unusual to see something in the morning paper and own it by noon the same day. Know where the real estate book stands are and pick them up the day they are distributed. Go on the Internet and look for land listings. And finally another way to find property is to have local agents regularly send you their land listings. Driving around looking for land that is for sale is a waste of time and gas. This is because a lot of rural property doesn’t have a sign on it!
When looking for property to buy, some rural developers will buy close to their home not necessarily because it is convenient but because the developer knows the property. Most importantly is knowing if it is a good buy, the property is where buyers will buy, and finally there is a good market for resell. There are two things to consider if you plan to buy “out of town” or outside a town or city. One is to remember that your buyers, or the majority of them, will most likely come from a major town/city as that is where the population is and where the most prospective buyers are located. The second is always be aware of how far your prospective buyers will commute to work. Part of your marketing strategy is to find out just how far out people are willing to live and where their jobs are located; ask every prospect who calls these questions. Developers often find that a major highway that runs through a town say thirty miles from a major city could be the dividing line for prospective buyers who choose to not purchase land on the farther side of the highway away from the major city, even if the property is only a few miles farther!
There is no average time-frame of beginning to end when purchasing/developing rural property. The time it takes from finding a suitable development property, to closing the sale to purchase it and getting it financed, and selling it out completely, varies with the size of the project. A large tract takes a proportionate amount of time to sell out than a smaller track. For example two to five acres can be sold in a month or two while ten to twenty-five acres may take six months to a year to sell out.
Other factors include a slow economy, one location may be a little better than another, roads to build, utilities to be brought in, etc. You may choose to avoid this type of property as you may have to start spending money to improve the land and your return may not justify the outlay of time and money.
One final note: buying land to develop it can be a lucrative and rewarding business, if you take the time to do your homework, know your market, and invest in the time and effort to study the land, the people, and the properties you plan to develop. Remember buying and selling houses is a completely different than buying rural property to develop. Anytime you find someone who is selling houses, commercial property and development real estate, be weary as this person dealing in all three markets won’t usually be very effective at any one of them.
