Many beginning real estate investors are searching for a real estate technique that I would call “real estate made easy.” While real estate investing is not easy, there is one actual approach to land investing that I believe is the closest thing to “real estate made easy.”
While it is true, over the long term virtually all real estate goes up in value. Holding land long term may not be the best choice for most people. In addition, since holding land itself does not produce any sizable income, the investor must consider the opportunity cost associated with holding it.
So what is the best way to make money in land?
First of all, there are many ways to make money in land. But there is one technique called the “land split” that is close to being “real estate made easy”. It can be very profitable, while minimizing risk. It’s a relatively simple approach, but it is practiced by very few.
Simply stated, the land split is defined as “any parcel that is divided into lots, parcels or fractional interests that are below subdivision requirements.” This is usually five or six lots.
For the most part, a land split requires you to hire a surveyor who will confirm the lot boundaries and draft and record new legal descriptions. Now you still need to do your research and due diligence on the property, but the headache of the subdivision process is largely avoided.
Realize that the number of times you can split a parcel is not impacted by zoning restrictions only. There are often deed restrictions and homeowner’s association restrictions that impact the number of times you can split a given parcel. These restrictions may also define a minimum lot size.
Understanding the process of the land split, including the legal and environmental aspects, is of great importance. Even if you have never purchased a parcel of land before, you can be successful. With a solid system in place, anyone can learn to exploit the opportunities in land splits.
Land splits are not based on market timing. You can make money when real estate prices are rising or declining. You just need to have a system in place, a little motivation and have a good feel for your market.
The land split works because it allows you to buy land, split it, add value to it by making certain relatively inexpensive improvements, and sell off the parcels for a substantial profit. You can then:
o Retain a parcel or parcels free and clear;
o Sell your remaining parcels by carrying a note thus generating monthly cash flow; or
o Sell all of the lots and buy a larger parcel with the proceeds.
I’m not sure there is any form of real estate investment that would truly be considered “real estate made easy.” But when you look at the fundamentals of the land split, you can see the simplicity. Remember, even though the process is relatively straightforward, there are many pitfalls along the way. But if you follow the process, you may even call it “real estate made easy”.