Split Land to Make Money
By Steve Gillman
There is a certain simplicity when you buy and split land
as a way to make money. Of course, nothing is as simple as it
seems with real estate. You have to learn the local laws regarding
how small a property can be split, how to get a survey for the
splits, and so on. You also typically get no income from land
you plan to split, but you are still paying property taxes until
it sells.
But at least you don't have tenants to worry about, or heating
systems that can suddenly fail, or roofs to repair. You also
don't have to gamble on an increase in value and wait for it,
since you are creating the value by making the land into more
accessible lots for buyers. So perhaps splitting land is a simpler
kind of real estate investing than buying rental houses or speculating
on commercial land.
Many years ago a friend of mine bought a home on 65 acres
as an investment. He had the land surveyed, split off the house
and one acre, which he sold for close to what the whole property
cost him. The rest of the property he split into lots of an acre
or two. It took a couple years to sell them all, but the profit
was certainly worth the effort.
To buy and split land is a relatively safe process if you
do your research. Some of the costs you might have include surveys,
"perk tests" if there will be septic systems, and property
taxes. There can be other minor costs too, like governmental
fees to get new tax identification numbers for the new parcels
you create. Buy land that already has road frontage on more than
one side and you can often avoid the cost of building a road
to interior lots. There will be some legal costs if you want
conditions and covenants or other agreements and subdivision
plats drawn up for you.
Each property can have its own issues and costs, but fortunately
it is possible to estimate these expenses before you make the
offer on a piece of land. Of course, what is sometimes unpredictable
is the amount of time it will take you to sell the lots you create.
During this time you will have the relatively minimal cost of
property taxes, and - if you borrowed for the deal - the much
bigger expense of interest on the loan.
You may have higher property taxes in total from that point
on, because the sum of the value of all your lots will be more
than what the property was worth whole (at least you hope so).
Most of these costs can be estimated with some certainty before
you begin. Then, once the land is split, your primary expense
will be property taxes, at least if you are doing this whole
deal with cash. Otherwise you will have interest charges as well
(unless you financed the deal).
How Much Can You Make?
Every deal will be different, of course, but you should determine
what the resulting lots will sell for, what your costs will be,
and - in my opinion - only go ahead if you'll be making at least
$100 per hour for your time.
Ways to Make More | Related Opportunities
| Tips
There are a couple ways to make more money. One is to use
cash rather than financing the purchases. This also lowers the
risk of having profits eaten up if sales are slow. If you have
a little cash, start small. If you can find an investor who will
split the profits for putting up the cash while you do the work,
that is another way to avoid borrowing.
Another way to boost your bottom line is to offer financing
for the resulting lots, in order to sell them for a higher price
and generate interest income. If you have lots that normally
should sell for $15,000 cash, you might get as much as $20,000
each if you offer them to buyers with $1,000 down and easy monthly
payments. This can tie up your capital for a long time, but the
increase in sales price and the interest you charge might make
up for that. You also could have a balloon payment due in three
years to limit the amount of time your cash is invested.
Qualifications / Requirements
If you have the will and the ability to raise the money, there
are typically no legal requirements to becoming a land developer.
First Steps
Learn a bit about real estate, research your local regulations
to learn what you need to know to buy and split land, and find
the funding. Then start looking for land that can be profitably
split.
Resource
National Association of Home Builders - Land Development
- There is some good information here about the challenges you'll
face if you decide to split land or otherwise develop real estate.
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