Most people believe that when investing in virgin land, the property must be growing or have some potential for development. The truth is that there is a niche in land investment that very few people are taking advantage of. Before getting into the niche itself, it’s important to understand what I’m talking about when I say raw dirt. I’m talking about land that has NO development potential and IS NOT on the path to growth. I am specifically referring to properties such as farms, ranches, mountain land, logging land, hunting land, and just general recreational land.
I have been involved in over 1,000,000 raw land transactions and focusing on these types of properties usually means there is virtually no competition from other investors. Why is this? Think of it this way. If there is a person who has 1,000 pieces of land that is 1 hour from a larger city and asks for $2,000,000 or $2,000 per acre for the entire property, how many potential buyers does he have? It’s a very small buying group because most owners don’t want to split the property because they might keep parts of it and not sell enough to “get out” of the property. So what the seller is looking for is a person who is willing to spend $2,000,000 to have a place to get away for the weekend or to have a place to hunt. Now, do you see what I mean about a small purchasing group?
So how can you quickly turn around a property like this and make money when the owner hasn’t been able to sell it for a year or more? You’re not going to look for that one buyer, you’re going to find about 30 buyers who can spend about $85,000 each. Now, look at what you’ve done to the potential buyer pool. You are no longer just looking for millionaires because we have structured the property so that someone with $85,000 can buy a piece.
How do you structure the property to get these buyers? There are 3 simple key principles that we use to achieve this. First, we are not going to buy the property because we want to limit our risk and not everyone can afford to buy a $2,000,000 piece of land. We are going to control the property using an option. So let’s assume we can opt for the property at $1,800,000. We will then do a dual or simultaneous closing when we sell the property so we don’t have to take any money out of pocket to make this deal. Second, we are going to divide the property into smaller lots (just on paper, no survey) and offer it to the public in different sizes. This allows potential buyers to buy what they want. They can combine multiple brochures to buy even more. Third, we’re going to do this using an auction. This accomplishes several things. It will allow us to offer the property in multiple tracts like the 30 mentioned above, but it also allows buyers to decide how much land they want and have to compete against other bidders in order to purchase it. We also receive bids on all parcels within one hour of the auction.
When you add up the auction bid prices (example: as mentioned above, 30 treaties at $85,000 each on average) that comes to $2,550,000. Your profit is the difference between your option price of $1,800,000 and the total sale price of $2,550,000, for a total of $750,000 in profit. Not bad considering that in many cases you will have less than $1,000 at risk. Vast tracts of virgin land are one of the last remaining untapped real estate investment opportunities, so why not take advantage of them?
