Approach For Profits In Predevelopment Land – Part I
Since the beginning of time, land has been the primary source of wealth and power. Today, land continues to be one of the most prize and prudent investments, if it is careful researched and astutely managed. Creating extraordinary value has always been the result of extraordinary vision and hard work. Finding the right land investment takes a little of both.
History has shown that cities tend to grown in one predominant direction. Bu studying the history of a city as well as current demographics, it becomes apparent where the future growth will occur.
For our company the ideal land investment is that which exists in a growth corridor that will be developed within three to five years. Such a parcel is called predevelopment land.
In the United States predevelopment land is a stable investment. Its profit potential is consistently and significantly greater than any potential risk. It can be one of the best investments for the patient, sophisticated investor. But for the land to realize its maximum potential value, it must exist in a rapidly growing metropolitan area, be thoroughly researched, correctly purchased, actively managed, and aggressively marketed at the appropriate time.
Philosophy of Dan Tomlin Investments
Our company’s philosophy is this; put the investor’s interests first, and make every effort to minimize risk and maximize profit. Minimizing risk is the key. Risk factors can be minimized by initiating in-depth property research and analysis prior to acquisition. Then, with creative land management and an energetic resale program, risks can be reduced even further.
Our company believes property should be acquired in growth areas with a proven ability to sustain growth. Land investment principles can be applied to any city. But our company believes the necessary development momentum is only found I cities with a population of two million or more.
A small town’s population may grow up to 15 percent per year, but only a small amount of acreage is required to fulfill its development needs. Conversely, the major growth markets of the United States develop thousands of acres on annual basis. This provides less risk, shorter holding periods, higher returns, and greater liquidity for the cautious investor.
Only the most vital properties within a growth corridor should be purchased. Such properties should have access to sewer and water and should contain no major physical problems. Ultimately, these properties can be purchased for between 25 percent and 30 percent of the price a developer will pay when the tract is ready for development.
Also, on-site professional management leads to minimizing risks and maximizing profits. Such management provides the company with an intimate knowledge of activity and marketplace trends.
The role of research
Research within a specific metropolitan area begins with a study of past rends: the why, where, and when of a city’s growth and evolution. What has been the historical absorption of land? Where did it take place? Why did it occur where it did? Was it because of the access provided by major thoroughfares? Did the availability or lack of utilities play a role? How did the development relate to employment and shopping centers and schools? Were physical restrictions and barriers, such as rivers, mountains, swampy areas, railroads, or highways, involved? Detailed knowledge of past trends indicates where future growth will occur and provides an understanding of historical land value trends.
Corridor concentration
These general aspects within the growth corridor should be analyzed:
1. Center on factors that will impact the target area, such as the location and size of major employment centers, transportation routes, zoning patterns, local government’s attitude toward growth, location and quality of schools, and the price of housing in development areas.
2. Utility lines, including sanitary sewers, water, electricity, and gas, are evaluated to determine their location, availability, capacities, and possible effects on the area’s future property development.
3. When appropriate, analyze mineral ownership, fault lines, power and pipeline easements, and soil conditions. These elements are studied to evaluate their role in determining future land use.
4. Traffic count maps are used to determine which roads are most important, both now and in the future. Also, construction timetables for future roads.
5. Review current zoning and master land-use plans. To better understand attitudes about future development, discussions should be held with zoning board members and city council members.
6. Assess current absorption rates from other developers’ projects. Monitor their current development activities. How will such developments impact future projects in the area?
7. Trends in development should be monitored, too. How will changing consumer interests alter land use as well as current and future projects?
8. Develop absorption studies by submarket and zoning categories. The real absorption of land occurs when the project is occupied by the ultimate user, not when the property is sold to the developer.
After the corridor’s characteristics are thoroughly understood, you should identify those tracts that are most critical to the area’s orderly development. Review each property as it relates to: zoning, frontage and access, soil and slope analysis, topography, and so forth.
As the predevelopment land user is concerned with the three- to five- year horizon, he must always determine when the developer will be ready for the next project, and where it will be built.
Through this exhaustive process, you will identify the prime metropolitan growth areas, the primary growth corridors within those areas, and the most important properties within the corridors – those with the lowest risk and the highest appreciation potential.
The second part of this article will discuss acquisition strategy, land management, and the purchase process.
Dan Tomlin- Star Mazda bio
Dan Tomlin Investments bio
Dan Tomlin – Home site bio
Dan Tomlin Jr. is the managing partner of Tomlin Investments, a North Texas based real estate development firm. He served a six-year appointment on the board of the Real Estate center at the Wharton School of Business.
