In the first part of the real estate middleman series we went over the major benefits to being a real estate middleman. In part 2 of the series I am going to cover the basic differences between a real estate middleman and a typical house flipper.

For quite a while now “flipping real estate” has been a major source for American entertainment, as well as the American dream. All of the cable TV shows made flipping real estate appear so easy. I know from experience that when I tell people that I flip houses about 50% tell me that they were thinking about doing that too. The problem is that most of the nation is heading into a real estate slump. Michigan has been in a real estate slump for a very long time so I am fairly used to dealing with slow real estate sales. In just the first 3 months of this year I cleared over $100,000 flipping homes. I do not say this to impress you, I say this to “impress upon you” that money can be made even in the slowest markets.

Outside of flipping homes, I have made a lot of money this year as a real estate middleman. As our real estate market continues to slow, more and more of my business is coming from my profits of being a real estate middleman. Flipping properties the traditional way involves buying a piece of real estate below market value and then fixing it back up to sell for profit. This is great as long as the housing prices in your area are not plummeting while you are making repairs. But, as you know housing prices have been plummeting in many areas of our country, which is hanging the high profit house flippers out to dry.

Real estate middlemen on the other hand have been continuing to profit regardless of market conditions. Easy profits are still available for the middlemen because they do not buy any homes that are not already sold. You see, as a real estate middleman I do not need to deal with the worries of a traditional property flipper, because I do not repair properties. I just find great deals on real estate, then find buyers who want great deals, and connect the dots for profit.

Eric Medemar is a Realtor/Real Estate Investor out of Grand Rapids, MI. Eric currently owns 35+ rental properties, and is the creator of The Ultimate Real Estate Wholesaling System the course that allows you to duplicate his exact real estate middleman success system. You can view Eric’s Blog at Free Guide To Real Estate Wholesaling also, be sure to check out Erics Ultimate Real Estate Bird Dog System. This system teaches you how to “earn while you learn” real estate investing.

Sophisticated land investors know the ultimate profit is made when the property is purchased. That’s why our company believes land should be acquired three to five years before development. Further, we believe the cost of the property should be 25 percent to 30 percent of the price developers are currently paying for comparable land that is ready for development. These criteria assume that developers will pay no more for land in the future than they are paying today, and that continued demand will not exceed supply. Also, they also assume the property has access to utilities, and that no profits are dependent upon changing zoning.

This conservative approach enables our company to minimize risks by adhering to a formula that creates investor returns. Risk is primarily a function of the unknown. So tremendous energies should be expended to identify and understand all possible risk factors. By thoroughly studying a property before acquiring it, the investment outcome is more predictable, and the potential risk, if any, is more manageable. Regarding property acquisitions, follow this simple rule: when in doubt, don’t.

The purchase process

If all the analysis factors are favorable, then consider price and terms. But low price alone doesn’t make a property suitable for investment. You should negotiate not only the price and terms but also the factors critical to a proper acquisition. You may analyze hundreds of properties and negotiate no many of them before you find a property that meets all of your requirements. However, if any point of the contract has not been negotiated to your complete satisfaction, don’t consummate the acquisition. Instead, move on to the next prospective property. When you begin to compromise your standards, you create future problems for yourself.

Land management: A crucial factor

Even before you acquire a property, you need to design a management program with goals and objectives and a timetable for accomplishing them. Successful land management requires hands-on participation, enabling you to take advantage of opportunities or to counter negative situations. By following an aggressive plan, you can speed up the development timetable and reduce the holding period. Often, developers are willing to pay premium prices for land that has been readied for development . So an aggressive and creative land-management program can lead to superior returns.

Management activities vary with each property, but they often include the following points:

1. Plan for zoning and rezoning- You shouldn’t buy property that must be rezoned to make your “numbers” work. But if the value can be enhanced, or if resales are less difficult to achieve by rezoning , then you should begin the process. Review your plans with city staffs and attempt to win their support. Visit with the zoning commission, neighborhood groups, governmental bodies, and city council members, as well as with those making the final zoning decisions.

Share your market information with local government officials. They are in the business of forecasting future growth from the city’s standpoint, and your data may help them to determine future utility, road, and school needs. If your proposal is detrimental to the city, don’t even consider the project. Being a good citizen and enhancing the city’s developments are the roles of a long-term player in any market.

2. Donations may increase value – In some cases donating properties can be a valuable investment in community relations, and it may increase the value of your land, too. For example, by donating land for future roads, our company persuaded a government agency to build roads sooner than planned because of the reduced road cost to the city. Investigate the benefits of donating road rights-of-way or property for a future park, school, police department, or fire station.

3. Remember site layout and property beautification – Study site layout designs for alternative ways to resell the land. A good plan can help to determine the most profitable way to liquidate a property. It’s a valuable in the resale process.

Property beautification can be critical, too. When two tracts are equal in terms of price, location, zoning, and so forth, the developer will inevitable buy the more attractive property just because it looked nice. Also, the attractive property will attract more attention and cause the developers to look at it first. In other cases tree lines may block a view of the property. Visibility is enhanced with care clearing.

4. There are more points to consider – Obtain short-term income from the property by creating golf driving ranges, baseball diamonds, shooting ranges, and so forth. Such measures will help to reduce the property’s holding and maintain its attractiveness.

Work to minimize or contest rising taxes and insurance costs. Also, keep developers and brokers aware of the property. When they are ready to begin a new project, they’ll remember your parcel.

Property disposition, profit realization

If you constantly monitor the economy, current market conditions and trends, and the progress of your management program, you will know when to hold the property and when to sell it. When the timing resale is right, use your research and prepare property resale information. Such data should describe the property’s characteristics and include a development plan and a pro-forma analysis with appropriate exhibits. These materials show potential buyers that profits can be made by developing the property.

The rewards

When predevelopment land is correctly researched, carefully selected, and dynamically managed, it can be a stable and prudent investment. Its profit potential is greater than any risk. But, as you can see, investing in predevelopment land requires the resources of an experienced, creative, and aggressive management team. With strict adherence to your formulas and plans, you can achieve substantial returns – regardless of market cycles – year after year.

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.

Dan Tomlin Star Mazda

Dan Tomlin Investments

Dan Tomlin Jr Bio

However, it has only been the last few years that companies have been set up to take this investment opportunity to the mass market. If done correctly, they will allow everyone to benefit from the opportunities available.

Land investment offers individuals the opportunity to reap significant returns on their investments and, with finance packages offered by most companies, they can do this for as little as £50 ($100) per week. In light of this, shareholders range from people choosing this as an alternative nest-egg for their pension to first time buyers using it as a way to get a first foot in the property market door.

Reflection of Risk

An investment of £12,000 in one share could lead to returns of about £50,000 to £60,000 in the next ten years or so, which outstrips most other investment opportunities. However, as always the level of return is reflected in the element of risk associated with it. With this in mind, it is imperative potential investors do their research on the different companies in the marketplace and only invest in those which are credible and offer realistic opportunity for returns.

Bad Reputation

To date, the land investment industry has not earned the most glowing of reputations, however there are reputable companies out there and they are well worth taking a look at. People looking for an alternative opportunity should not be concerned about taking a well educated risk. Well thought out share purchases could result in significant returns sooner than you think.

Valuable Guidance

It is the investor’s right to find out as much as possible about the land their money is going into, and while companies should be supplying investors with as much detail as possible, it is also worth doing some independent research. Companies should encourage investors to do this, as speaking to planning departments will provide a clear indication of the local authorities view on individual plots.

Land investment will always carry an element of risk, which is why the returns can be so high, and although a substantial return on it can be anticipated it can never be guaranteed. Companies that do give guarantees are unlikely to deliver on their promise in the short, medium or long term. As the demand on housing stock continues to rise, the number of land investment companies is set to increase further. Most local authorities across the country will have plans for urban expansion and this is something the astute investor can use to their advantage.

IlandI – are a UK based FSA registered Land Investment Company.

Paul Steven is head of the Search Engine Optimization department at 360innovate, a UK based SEO and Internet Marketing Company.

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.

A contract used in a sale of real property whereby title to the property remains vested in the seller until the buyer who receives the right to possession has paid in installments over a long period of time a preset amount or all of the purchase price and upon default by the buyer all payments may be forfeited. Also known as a Conditional sales contract, an Installment sales contract and a Real property sales contract.

I’ve used land contracts to buy apartment buildings, single family homes and land. I do recommend buying real estate on land contracts but not selling on them. Using a land contract allows you to use leverage when you are buying a piece of real estate. This strategy gives you time to come up with the rest of the money needed to pay for the property, since normally you’d only have to come up with 10-20% down and most land contract transactions don’t require a person to have good credit.

If you decide to sell property on a land contract, beware of the fact that if the buyer does not honor his end of the deal, you will have to foreclose on them. This will NOT be a simple eviction out of the property. This is because, when you’re doing a land contract, you are giving the buyer equitable title. As the buyer makes payments, he actually owns equity in your property, thus requiring you to foreclose in order to legally separate them from the equity that they have paid for. Not a good strategy for selling, unless it’s a property that you simply can’t sell to anyone, for some reason.

It is important to note that a land contract is really a mortgage on the property. It’s a seller-financed mortgage, which can be refinanced, just like a regular mortgage. Land contracts these days are for much shorter terms than in past decades. The average term for a land contract is anywhere from 2-5 years with a low interest rate, but is totally up to the parties involved. I always go for the longest possible term. This give time to get the property, make improvements and decide if I want to refinance or flip.

Here’s one of my past deals. I bought small apartment building from a worn out landlord using a land contract. I negotiated the purchase price to $500,000, the down payment down to $1,000 just enough to bind the contract and because of all of the work I had to do to get the building running properly. If someone didn’t step in to turn things around, the seller would have been foreclosed on soon. Fixed up the units by using the proceeds from the few tenants that were paying. Moved several new tenants into the rehabbed units, stabilized the rents then sold the building to another investor for $700,000.

I was able to get control of the property with almost no money out of pocket, use the collectable rents to fix up the building and sell because of the flexible financing terms of a land contract.

CAUTION!

You have to be very careful when drafting or signing a land contract. Seek legal advice before entering into a land contract agreement.

I am a seasoned real estate investor and licensed realtor, with years of experience transacting real estate deals, commercial and residential.

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