Many commercial property investors dream of buying a plot of vacant land and turning it into a thriving commercial real estate enterprise. It’s hard to beat the satisfaction and sense of achievement you feel when you pass a building or shopping plaza and can say to yourself and others, “I built that!”
Land development is also a way to take a small amount of money and turn it into a large return on your investment. However, not everything in land development is sunshine and roses.
As in any investment, there are pros and cons.
The best way to develop a vacant property is by changing its allowed use or zoning – making the land more profitable without investing any money.
How often have you seen a line of stores followed by an empty lot and another line of stores? The reason that lot sits vacant could be because it’s currently zoned for a nonconforming use; it may be a remnant of a formerly all-residential street, or it may be zoned for another use that doesn’t “fit” with current area businesses.
Normally this land sits for years with a huge For Sale sign in front. Chances are anyone who does their due diligence will discover the current zoning situation and move on to an easier deal. They are missing an amazing opportunity; usually this land can be picked up for 25% of the price of nearby lots.
If you do snap it up, all you need now is to be patient and play the bureaucracy game. Apply for a rezoning permit and work to get it zoned in accordance with the other properties on the block. This takes time and determination, but if you stick to it and it is rezoned, you will have instantly quadrupled your investment.
One of the most important things to be aware of when deciding to invest in a particular property is the potential for environmental hazards on the land. Just because the land looks fine now and there’s nothing nearby that could have caused a hazard doesn’t mean one doesn’t exist. Often properties located a mile or more away can have an impact on the lot you are considering purchasing.
For example, they may have had contaminants that got into the groundwater, coursed underground and pooled up under your lot. Buy it and it’s your responsibility to get it cleaned up. So an environmental study should be a vital part of your due diligence.
Another potential problem is dealing with the local community. Residents don’t always welcome “big box” retail stores. They feel they take away from the charm of the community and impact negatively on the local businesses already present.
Fact is, you may have the best investment strategy for your land, but if the community protests the plan, then you are going to find yourself in a losing battle. When you are planning on building a large-scale project, it’s best to conduct focus groups BEFORE committing, to see how the community feels about your project.
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