Everyone talks about how much money you can make by buying the S&P 500 Index. But do you know that investing in commercial real estate (CRE) produced a higher average annual return than that index between 2000 and 2020 (9.5% to 8.6%)?
Developing commercial land is one of the strategic ways to profit from the US CRE market. But like every other business or investment strategy, those who know what they are doing profit while those who don’t languish.
In what follows, we will highlight eight key strategies that can help you profit from commercial land development.
Select the right site
When it comes to CRE, location is everything. Ensure you purchase land in states and cities where there is high demand for CRE properties and/or where demand is most likely to rise in the coming weeks and months.
High demand can be the result of a high number of businesses migrating to the location, a growing economy, and lots of job opportunities.
Even within a state or city, you need to select the right site for the property you want to build. Things to consider include the size of the land, access points to the land, its visibility, presence of public facilities, nature of traffic flow, and soil topography.
Conduct thorough due diligence and feasibility study
The essence of the due diligence process is to ensure that there are no legal issues (encroachment, liens, commercial zoning restrictions, etc.) with the chosen site. It will also include verifying the ownership of the property and ensuring there are no current legal battles regarding that.
On the other hand, feasibility study is mainly an economic or financial concern. It includes carrying out a survey to determine if the people want the property you want to build and if they have the financial capacity to pay for it.
For example, if you want to build an amusement park, you need to gauge the perception of the people about such a project. Are they excited about it or do they see it as a luxury no one needs?
Given the amount of money that goes into commercial land property, you must be very sure that effective demand exists for your project before proceeding.
Prepare a budget
Even if demand exists, you must evaluate if it makes financial sense to go ahead. A budget will tell you how much you can expect to spend on the project.
Once you have this figure, compare it with how much you expect to make from the property – through rental income or outright sale. You should only proceed if you are comfortable with the rate of return.
Buy the land at the right price
Your budget will include the price you are willing to pay for the land. This should be a fair price based on your valuation of the land (by researching what comparable lands are selling for).
If the seller insists on an amount greater than this, you should consider moving on except there is a way you can still maintain your rate of return while buying the land for a higher price.
The important point here is that you should not go into negotiation for commercial land without your fair valuation of the land.
Consult with relevant authorities
You must have met with the relevant authorities during the due diligence stage. If you decide to proceed with the commercial land development, you need to pay them another visit to inform them of your plans.
Informing the community might also be a good way to build rapport and a positive image.
Hire the right people
If you are outsourcing the entire construction project, ensure you go for a reputable, experienced, and skilled construction firm.
Also, if you handle the project yourself, hire skilled and reputable workers who will handle every stage of the project.
Monitor the construction process
Whether you are coordinating the workers yourself or have outsourced to a construction firm, you need to monitor the entire construction process.
Make regular requests for written reports and pay unscheduled visits to the site.
Close-out the project
Once the project has been concluded, ensure you close out – return borrowed items, get all necessary documents, ensure every piece of equipment is functioning well, and clean the inside and outside.
Closing out ensures that the project is presentable to potential buyers or tenants.
Don’t forget earnest money deposit
Most land sellers will require you to pay an earnest money deposit before you can conduct site assessment and inspection.
Since this process is crucial to everything, you must ensure you always have earnest money deposits sorted out before going on with the commercial land development process.
With a company like Duckfund, you can get earnest money deposit financing for all your CRE deals. You can complete an application in 2 minutes and get the money deployed to the escrow in 48 hours, all without submitting any credit reports.
What are you waiting for? Get earnest money deposits from Duckfund and go on profiting from developing commercial land.
