Where would I fit in in the REI world?

General Real Estate Investing
1

Hello,

This is my first post here, and I chose to inquire on this board as many other posters seem to resemble many of my clients (who happen to make much more $ than me!). Hopefully some of you can provide some advice.

I’m trying to determine how I can make better use of my skills as a land use planner and site designer in the private sector. As of now, I am with a private consulting (planning/engineering) firm. I manage residential, mixed use, and commercial projects from beginning (feasibility) to end (construction, final plat), and often do much of the initial site design and layout. I deal with permitting at all stages, and solve (hopefully) the inevitable problems that arise along the way.

As a consultant, I make the same money regardless of how much my client (landowner, developer, middle-man…) earns from his project. Naturally, I take note of the “green grass” on the other side and wonder how I can get there.

My central question is, given my skill set, how would I fit in with a developer, RE investor, or builder? I’m not overly knowledgable about the real estate side, but am knowledgable about land use policies, site design, and can do extensive research on property and infrastructure.

I feel that bird dogging would be sort of a step down, but I think I would be useful in that type of a role. What is a similar, maybe more advanced position that an investor or developer may want filled? Project manager, representative, researcher/analyst…? Do any of you investors do enough feasibility research to require full time time help?

Eventually I want to invest on my own, and probably do some development, but for now I’m mostly looking for experience. So what kind of opportunities should I be aiming for or creating?

Thanks,
Jbear

2

I would suggest wholesaling of the commercial properties. Your profit on those kinds of deals would be good.

Regards,
Patti Porter

3

Hello jbear,

Not all skills sets are found in ever person on a team. Many of the groups we work with have developed their companies around folks that have differing, but contributing skill sets. For example, one group we work with has a land purveyor, lawyer, accountant, land engineer, finance expert and construction expert and real estate broker all as principal owners of their group.

I think your skill set would be a great addition to a development group or the basis for starting one yourself. You can be great at construction and building, you might be a great real estate broker and have all the homes presold, you might be a great architect with the most brilliant designs, but if the land you bought cannot be built on, or built on in the way you want, then you just wasted your money on the land and the General Contractor, Architect, Real Estate Broker, ect. really never become of any consequence.

The first component of development, and redevelopment, is acquiring the right piece of land (or property) and getting it entitled. Having the skills to determine what land can be entitled for profitable development and which cannot is a valuable resource to have.

It could be that you could find success and never build a thing. We know several folks who make a strong living by idenitifying land, investing, gettting it entitled and then cashing out to building groups.
The building groups often do not want the hassle and risk of getting land entitled and prefer to buy buildable land. Since you do not have experience as a contractor, this might be a way to use your skill set to add value but not go into the building phase where your skills are lacking.

4

Patti, thanks for the response. I’ll look into wholesaling as an option.

JAAMJK, I’ve actually been considering this very concept as a possibility, as I already do this for many of my clients (although they are the ones that deal w/ entitlement and cash out in the end!).

I recently finished a book on options to purchase, which look to be a good mechanism to accomplish what you are talking about (w/o actually buying the propoerty).

Do you know of any other ways to tie up raw or underutilized land that may be more attractive to the seller? (It seems as though options would only work w/ property that is undesirable and/or a liability to the owner.)

I suppose the next step would be to find some fellow investors w/ complimentory skill sets, set up an LLC, and go to work.

Thanks,
Jbear

5

One interesting way we have seen in work is through Joint Venture.

You bring the skills and development team to take the land from raw to entitled and the property owner brings the land. Once entitled the land will increase in value and can be cashed out. When sold, the property owner stands to gain more as a venture partner that just selling raw acres. You get what you need, no cost of acquistion.
You bring the cost to entitle, the property owner brings the land.

If you get a hold of an unsecured line of credit or two then you will have the capital ability to float the entitlement costs until the sell out.

Just an idea.

6

JAAMJK, thanks for the joint venture idea.

Can this tactic produce profits even if you don’t get the land entitled? For example, what if we enter into a partnership w/ a property owner, and instead of taking the property through permit approval, we just produce an in depth feasibility study and use that to market the property?

The reason I ask is that permitting (subdivision, building permit, site development…) in my neck of the woods can be an extremely expensive and lengthy task, and I don’t really have the time or money to get through the process at this point in my life. Would just marketing the property with feasibility generally result in enough profit to justify the costs?

Also, could you recommend any literature on joint ventures? I think it is definitely worth my time to learn about this approach.

Thanks,
JB

7

Hello jbear,

I am not sure you are bringing any great added value just with the feasibilty. I think you are going to find people hitting you with contingencies. Plus, even with a feasibility study completed, you still have no attached value to each potential building lot. So the acre you bought and the acre you are selling to me are the same, nothing has been attached to the land to make it worth more.

I will give you an example of how the risk is still attached even with a feasibility plan that was well done and well directed:

A developer buys the land, and when purchased, the feasibility study is accurate. But, the township, due to water permit restrictions or other reasons that changed between the time the feasibility study is completed and the time of final approval, changes the lot size from 1/4 acre to 1 acre. We have seen this happen when townships are trying to limit the pressure on their over crowded schools. If it is a market that a larger home cannot be built and sold, you may now have a piece of land that will not drive the revenues necessary to succeed in the project. The project dies and with it your investment in the land and the soft costs. As an investor, the risk can be great if you are not sure of what you are doing. Even when you are sure , things will pop up and bite you. The risk might be great but the return can be too.

I would try to think what a buyer of the land may want. Most do not want the asset to be devalued but rather have it increase in value. You increase the value of land but decreasing the risk associated with it. You do this each time you complete a feasibility study, acquire a permit, are granted a permission, put a curb in or run and electric line. The more that is completed, the higher the value and the lower the risk to your potential buyer.

The logical of the joint venture is that when the property owner contributes the land for an evenutal bigger pay out, you eliminate the captial needed to acquire and carrry debt on the land. The permitting and approval process is where you would have to carry costs. It is knowing that the land can be and is ready to build on that takes the risk out of it for a builder. Many builders are experts at construction but not experts at entitling a piece of land.

I would say that you could add value to a piece of land by providing the feasibility on it but I would imagine the value added would be more than what would be paid to you as a consultant. If I can hire someone to do the feasibility report, then the value of the land for me, as a developer, would be the market value of the raw land plus the cost of paying the consultant for the feasibility study.

What part of the world are you in?

8

JAAMJK,

I’m in the Seattle area, where land development rules are getting more complex, restrictive, and numerous each year. Taking a project through to construction approval is akin to performing a miracle these days, and it only seems to be getting riskier.

I see what you mean by value added (or lack thereof) produced by a feasibility study; the status or potential of the land is not changed through an analysis of the land. Have you ever come across a joint venture agreement where the landowner shares some of the permitting and consultant costs? Such an arrangement would make it more feasible for me to take a site through prelimnary or construction approval.

I’ve been thinking about rezoning as a relatively quick and (sometimes) easy way to add value to property. I’ve found that many landowners often do not even know their lot can be rezoned, or what exactly it can be rezoned to. Would a rezone alone add significant value? How about a rezone combined w/ feasibility?

I really appreciate your input. Obvoiously there are many things I need to get straight before I move forward.

9

Hello jbear,

I appreciate what you feeling about the restrictive and complex development rules. We are in New Jersey and if it is not bumping up against Environment issues (both enrivonmental and hazardous), or wetlands issues, or changing zone restrictions or something else that makes the box tighter and more difficult. But, I have to tell you that we tend to look more to properties with these problems that regular properties. If we can overcome all those headaches and get the land entitled to build, the value will spike.

Here is an example: We looked at a piece of land recently that was held by the current owner for some 30+ years. The property had 11 acres, three old foundations (probably over a hundred years old) and a nice man made lake. Man made or or not, if it is water and native vegetation has grown back, it will fall within one conservation law or another. Generally, this type of property would be worthless for development as it sits right on the edge of what is know as our Pineland designated areas. So, not only do you have major environmental impact issues, you have wetlands and water conservation issues on top of all your other regular zoning and land use ordinances. Oh, threatened species use the lake regularly. This is considered a highly regulated piece of land. But, the price of the property was set at $48,000 for the acreage.

The foundations allowed a legal arguement for grandfathering. We won this argument. When we won the argument we augmented and won approval, we subdivided into four parcels, once with each foundation and one common area. We did not deed the man made lake with the lots as we offered an environmental easement on that piece of property to perserve the lake. In addition, we purchased some adjoing acres to the lake (the lake is about 3.5 acres) that had no value and cost us very little, and offered these with lake access to the local school systems to be used as a natural classroom where gradeschools could develop and conduct natural science projects and experiments. We also then designed the lots to preserve the wooded areas and clear as little as possible. And, we designed all the right types of roads, driveways, and drainage to preserve the water quality from any toxic runoff and allowed cross path for your turtles and salamaders. Then we marketed the building sites to conservation minded, nature loving retired folks. We sold all the lots very quickly. The turn around for us was each lot sold at $365,000 as the were all lake front. Our costs were $55,000 for the acquisition, closing costs and misc. Another $35,000 was spent in infrastructure, engineering and litigation.

I wanted to send this example because I think the profit in taking land that may not be buildable for the toughest reasons and getting it approved can be a big pay day. Most folks with land that is thought to be unbuildable generally are not selling it for much. In other words, I think anyone can take a lightly regulated property and get entitlements in place. But using your expertise in highly regulated, more restrictive areas can be a strong niche.