Where is the Best Place to Invest Money Right Now? Buying Investment Property (PART 3)

PREFACE:

In today's chaotic economy, whether it's verbalized or not, a main topic on investors' minds is: "Where can I find a legitimate high yield investment without a lot of risk to my principal?" Is this a fairy tale now or can investors still find good safe investments that earn solid returns? This series of articles provides answers to these questions.

In Part One of this series (see my blog below dated 2-27-09), we focused on "WHY" investors should consider buying investment property in the form of raw land development projects and "WHAT" makes them legitimate high yield investments. In Part Two (see my blog below dated 3-13-09), we explained "WHERE" to invest in investment property.

Today, in PART 3 of this series, we will focus on:

The Raw Land Development Process
Step-By-Step

"What are best high yield safe investments"

STEP ONE: Professional Land Developers spend a great deal of time seeking what is called the "Path of Growth". They research economic and population projections and key factors such as job creation trends to identify geographic areas with favorable growth outlooks. Then, they drill down to the community and neighborhood levels to determine the directions of future growth and new construction. To do this expertly requires a seasoned research team and a network of external contact including local government officials, business leaders, real estate brokers, builders, etc. to conduct this 'due diligence' process and help locate possible raw, undeveloped land acquisitions situated in the identified path of growth.

STEP TWO: Once raw, undeveloped land is identified in the path of growth, the Land Developer will negotiate favorable terms for acquiring the property. There are a number of ways that land developers acquire property, the two most common are:

a) Purchasing the property upfront.
b) Obtaining an 'Option To Purchase' agreement: the land developer obtains the rights to buy the raw land by a set date at a set price by offering a non-refundable deposit.

NOTE: Investors are typically sought at this stage to help fund the acquisition of the property and cover costs associated with Steps Three - Five. These are typically 'silent' partners in the raw land development project.

STEP THREE: Plans are drafted for a proposed future economic use of the land. (e.g. Master-planned communities, shopping centers, business parks, industrial complexes, etc.)

STEP FOUR: The proposed plans are submitted to the city, county, state and federal governments for necessary approvals. This is known as "The Entitlement Process" and involves all of the critical sign-offs and approvals required for the newly proposed use of the property.

NOTE: In this step, the Land Developer literally 'creates' value and this is why raw land development can be so profitable. It is this entitlement process that creates an average 300-500% increase in the value of raw land - often with limited associated costs for even higher profits!

The increased value of the newly "entitled land" results from several important factors:

A. Obtaining the necessary government approvals to build on raw land requires time, experience, relationships and the ability to manage against competing intentions for the property.

B. The land developer makes formerly raw, undeveloped land available to builders and construction contractors in "ready-and-approved-to-build condition" -- often with turn-key access to utilities, municipal water and sewer, roadways, etc.

C. Fully approved or 'entitled' land is ready for immediate construction, giving builders and contractors the benefits of accelerated cash flow and returns.

All of these factors help make raw land development projects among the safest high yield money investments available today.

NOTE: A typical raw land development project will take anywhere from one to several years to complete. This all depends upon the size and complexity of the project, plus government approval time-lines.

STEP FIVE: After the raw land's value has been increased by the completion of the entitlement process and other improvements such as access to utilities, municipal water and sewer, roadways, etc., the newly 'entitled' property is sold to Building & Construction Contractors.

Result = average 300-500%+ increase in land value

Once the newly entitled land is sold,
the Raw Land Development Process ends.
Profits are realized and Investors are paid.


Finally, the Building Contractors take over.

After purchasing the land from the raw land developer, Building Contractors will begin to install the structures (e.g. homes, golf courses, retail shops, office buildings, industrial complexes, etc.) on the newly 'entitled' land. They will go on to sell the finished homes, offices, etc. to their customers - the end users (homeowners, businesses, etc.)

About the author:

John Hanlin is an Independent Investment Consultant specializing in low risk investments and retirement portfolio planning. He is a seasoned investor of over 25 years. Mr. Hanlin is the owner and contributing author of the website: www.JohnHanlin.com which provides detailed information about raw land development investments and free independent financial advice for retirement.