Tuesday, January 18, 2011

Tips on Buying California Investment Property, Undeveloped or Pre-Developed Land?

Generally there is only developed land which has some or full development on the parcel, or undeveloped land which would be considered just raw land with limited or no access but with future potential development. Much of the available raw land in the US is agricultural land or just vacant unused land. There is also an in between designation we identify as pre-developed land. The main distinction between Un and Pre developed land is the proximity to current development and the zoning of the parcel, but both are Land Banking options. Undeveloped and Pre-developed land offers the potential of both risk and reward whether it is zoned rural residential agricultural land, or typically better zoned pre-developed land which could be zoned urban residential, industrial or even commercial land use. Undeveloped land is generally less expensive to purchase than pre or developed land. An abundance of undeveloped land in Los Angeles County is designated agricultural use as large amounts of land is needed for farming, but usually this land type also allows limited rural residential uses. Don’t be afraid of the agricultural zoning as much of current developed land was previously agricultural land. Many of today’s farmers are now real estate investors as urban growth has encroached and absorbed their land.

Many parts of the City of Palmdale and Lancaster Ca. include vacant land parcels within the city limits or just outside, but at a distance from development. Much of this pre-developed land is rural residential, industrial (light or heavy) and a lot of multi-family residential zoning. The lowest price per acre would be the rural residential where an owner would be allowed to build one home per 2.5 acres. This type of land is cheaper acreage but high reward as the zoning can change to a more favorable zoning over time as city planning designates. The higher price per acre available vacant parcels would be multi-residential R-7000 or R-10,000 allowing one dwelling per 7000 or 10,000 square feet. You would have to pay a much higher price for this type of parcel zoning, but the return on investment can be in the thousands of percentages since housing developers will pay top dollar for needed property if you held the parcel longer term.

You can look at buying either undeveloped or pre-develop land based on your capital and time horizon. A low capital investment and longer time horizon which may be typical for a 401k, or IRA type of investment would best fit an undeveloped parcel. For example an investor could purchased a 10 acre parcel in LA County for $3000/acre of rural residential and agricultural land zoned and hold it for fifteen to twenty years. It is an ideal buy and hold opportunity where you should target a 200% return in twenty years or less. This would be a buy it and don’t worry about it investment. Undeveloped land should have the higher percentage increase of the three examples of land over time as it is easier to double you money on a $3000/acre investment than a $50,000 per acre investment.

Now with pre-developed land we have a high profit potential and a lower risk property with usually a higher capital investment and shorter time horizon target. Potentially it has all of the profit potential built in. Ideally, pre-developed land could have a better return on investment based on its zoning. Pre-developed land would be land directly in the path of growth with targeted zoning and in or near current city limits. A past example of pre-developed land would be the San Fernando Valley where decades ago one would pay $10,000 per acre for a vacant land parcel just outside current development. Today that type of parcel would be hundreds of thousands of dollars per acre over several decades. But you don’t have to sell the parcel after holding for decades as the parcel should be profitable in less than ten years. We look at pre-developed land as a more favorable profit potential in a shorter time frame as it is the land that has been allocated for near term future development for the cities growth. The urban development alone will drive the price increase of this type of property.

We have both types of properties in our inventory, which fit undeveloped and pre-develop scenarios in Northern Los Angeles County cities of Palmdale and Lancaster Ca.

Thursday, January 6, 2011

Why Los Angeles County Undeveloped Land is a Better Investment Vehicle Than the Stock Market

The Stock Market in 2010 has been rising, but the best long term secure investment may not be stocks in 2011. We feel land in general is a better long term investment than stocks. Stocks can be volatile and some stocks rise while others may go sideways or down. Most need an advisor to guide them in today’s equity markets, and with the global debt crisis their future value can be murky. Many analysts say the buy and hold strategy may be dead as short term trading is prominent in today’s stock markets. Land Banking and long and short term land investment has shown to be a more secure, patient, low risk and lucrative means for buy and hold investors. Investors can buy and forget about their investment for three to ten years as it grows. We focus on Los Angeles County land and undeveloped land in the Antelope Valley for several reasons. Mainly, the population growth in the county has increased from 4.1 million in 1950 to 9.6 million as of 1998. The US Census has projected that the population will increase to 12 million by 2025. The real estate prices have increased with this growth over the decades, but have recently returned to earth. In addition, land prices have also deflated with the real estate bubble. But real estate prices and land prices have potentially hit the bottom of the trough in the price curve. It is similar to buying stocks after a major sell off, since higher prices are most likely in the future. Land is at or near its bottom in this area as growth in the solar and wind industries has increased in the Antelope Valley recently. Solar and Wind Energy companies require large swaths of land for their facilities leaving less undeveloped land for homes. Home development is not on the increase currently, but once the population demands housing again then land prices will increase accordingly. Buying land now, especially pre-developed land at these lower prices has the potential to produce a much better return and lower risk investment then the stock market has in the past decade.

The past ten years the stock market has been referred to as the lost decade, since the market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the past nine years, and trounced even by lowly treasury bonds according to the WSJ(Aug. 2010). In an article from LandThink.com, Professor Jeremy Siegel of the University of Pennsylvania’s Wharton School indicated that stocks showed an average gain of seven percent a year when the data are controlled for inflation. This average works when looking at many stocks over many years. Some individual stocks may have increased more, but adjusted for inflation, a dollar invested in the S&P 500 in April 1999 produced no gain at the end of March 2008. The performance of big U.S. stocks amounts to an average annual rise of 1.3 percent during the past decade after dividends and inflation are counted in. (E.S. Browning, “Stocks Tarnished By ‘Lost Decade,’” Wall Street Journal, March 26, 2008.)

Yet, farm value in current dollars averaged $2,160 per acre nationwide on January 1, 2007, up from $974 in 1998, a 13.5 percent average annual gain according to the U.S. Department of Agriculture. Cropland during that period rose from $1,340 to $2,700; pasture rose from $489 to $1,160 (source Landthink.com)

An individual investor has to continually watch the stock market to ensure gains, or trust a financial planner to provide advice and expertise on the best stock investment. But undeveloped land is a much easier investment as it doesn’t require a financial advisor, maintenance, or exhaustive company research. Land is not exposed to flash crashes, insider trading, corporate public relation issues, or even Wikileaks. Land values slowly increase or decrease over time, so it is an ideal long term investment to literally bank on the future. It is the ideal buy and wait investment, so buying now at lower current prices may be your best retirement vehicle. Individuals simply can not make enough to retire by placing money in savings, or CD’s. You need to invest for your retirement, and we believe longer term land investment can provide you a secure future.

VacantLandDeals.com was formed to help investors find land investment opportunities at the low end of the market, and in the path of growth