Land is a beautiful thing, regarded by many as something of value in many places. Similar to home ownership, land ownership is viewed oftentimes as a significant asset that increases in value over time, in particular in areas that are more developed or developing.
It should come as no surprise then that wholesaling land can be just as effective as flipping a house. But there is more to land than just dirt. There are three primary categories to consider:
Undeveloped raw land – these are lots with no utilities of any kind and has never been built on
Developed land – these are lots with utilities in place, may or may not have ever been built on but has been recognized by the city as at least ‘somewhat ready to go’ for construction
Teardowns – these are lots with a house on them that is no longer habitable or perhaps is habitable but due to property values, age of home or other variables is better suited for demolition and new construction
Each of these categories has variables that need to be considered when doing due diligence. While each of these variables is an article in and of itself, at the 10,000 ft view if a wholesaler takes the time to educate himself in the high level of each, much, much success can be had when ‘flipping land’.
Some examples of things a wholesaler can educate themselves on:
Zoning – the zoning of a piece of land drives everything that can and more importantly cannot be done on the land
Setbacks – these are numbers that define the buildable area that the municipality, whether city or county, will allow for construction
Municipality – every county and/or city has its own ‘rules of the game’. Knowing the rules of the game for any given parcel spells the different between success and potentially catastrophic failure. And believe me, catastrophic failure is not very difficult to achieve!
Prior construction – when it is a teardown, it is obvious but when there is no house, finding out if one existed prior on the lot is immensely valuable information. I have bought lots where there was no house since the 1930s! It takes some probing to find this information out however can be obtained in many areas.
Vertical Construction costs – this simply means the cost of building the actual structure and any landscaping/driveways/etc. This number can vary wildly depending on location and price point but a safe starting point is $100 sq ft as a loose general rule. So when you see someone saying they can build at $50 sq ft, my first question is ‘are you stealing materials from Home Depot? It’s just not realistic in almost any situation.
Pre-Construction Costs – There is a lot more to building a house than just the vertical piece. Architects, surveys, soil tests, site plans, stormwater plans, permits and a host of other items can all arise prior to building anything and there is a cost to all of this
I know for fact that it is relatively rare for Wholesalers to be aware of these items much less educated on them. However being educated in these items at least a high level will make you a more effective negotiator. You will learn what things really cost so you can learn what you really need to buy land for without playing the ‘speculation game’ which is always a dangerous game to play. And as a bonus, a lot of people do not know how to value land which is why it is often overpriced more so than houses. People do not really ‘get this’ by and large since most people have never built a house and half the ones that have simply trusted their builder as a retail customer. That’s not us as investors.
Educating yourself on these topics can lead to strong deals which can turn into very strong profits for you and your Builder buyer. I oftentimes hear of people doing far better wholesaling land than houses and education is the key.
It can be very lucrative so dive in, get educated on the above and reach out to land owners. You may find yourself in a low competition situation with win-wins that are truly profitable.