Vanessa Peters, an excellent example of someone who fell into the trap of attending college, choosing a career, working hard, and climbing the corporate ladder, hoping they would one day be financially successful. She eventually took action.
Despite being a high-income earner, she realized she could not achieve her financial goals after building a career as a doctor for ten years. Aside from being in debt from her years of schooling, her life was centered around work, leaving her little free time to enjoy life.
Vanessa started investing in real estate in 2008 with a single-family home. Within a few years, she moved on to multifamily, mobile home parks, self-storage, short-term rentals, and land entitlements. Because of this, both syndicators and passive investors can get BIG returns.
Besides being the founder of VMD Investing, Vanessa is also the Chief Physician Officer of Graybill Medical Group in Escondido, California. In addition, she is the author of “The Busy Professional’s Guide to Passive Real Estate Investing.”
Therefore, there is no better person to share with us how to take advantage of land entitlement opportunities. You will want to watch this episode of Lifestyle Investor.
Understanding Land Entitlements
Before getting too ahead, let’s explain what land entitlements are.
Short answer: Land entitlements allow a landowner to change the zoning of their property so it can be developed a certain way. As a result, these entitlements unlock the land’s potential and increase its value.
You can really make money off land entitlements, especially in high-demand areas. For example, zoning approval for a high-rise condo in a prime location could be worth millions.
However, many approvals and permits must be obtained from local and state authorities, which can be time-consuming and complicated. The rewards, however, can be substantial, making it an appealing investment opportunity for long-term investors.
Benefits of Investing in Land Entitlements
Investing in land entitlements has many benefits. As a tangible asset, land entitlements have intrinsic value. In other words, they’re not as volatile as stocks or bonds.
Secondly, land entitlements can be an excellent investment. The value of entitlements will increase as the demand for land increases. By investing in land entitlements, investors can make a lot of money.
The third benefit is that land entitlements can be a hedge against inflation. The value of land will rise as goods and services rise. Therefore, land entitlements can protect investors’ wealth.
Land entitlements also have these advantages:
- Low initial investment. It’s usually cheaper to buy land entitlements than a developed property. You can get raw land for a fraction of the cost of developed properties, especially in less developed areas.
- The potential for appreciation is higher. As the land’s value soars due to the entitlement process, it can appreciate substantially. The value of the land increases as it gets approved for different uses, like residential or commercial.
- Various development options. With land entitlements, you can explore different development options based on market demand and the needs of the area. The ability to adapt to market changes allows investors to maximize their returns.
- The development is under your control. Investors can have more control over development when they have land entitlements. They ensure their investment is on target by tailoring projects to specific demographics.
- It’s less competitive. Land entitlements offer less competition than developed properties, so investors have a better chance of negotiating good deals.
The Risks of Investing in Land Entitlements
Land entitlements come with some risks too. First of all, land entitlements can go up and down in value. As a result, investors could lose money if entitlement values fall.
In addition, there’s always the risk of the land not being developed. For example, a developer might run out of money, or the authorities might not approve the project.
Third, the government may expropriate the land. Investors should be aware of this risk even though it’s rare.
Steps to Successful Land Entitlement Investments
It is possible to invest in land entitlements in several ways. It is possible to purchase them directly from the government or a developer. Alternatively, you can purchase them through a land entitlement fund.
An investment fund that invests in land entitlements is called a land entitlement fund. Without directly buying land entitlements, investors can get exposure to the market through this method.
However you invest in land entitlements, here are the steps to a successful land entitlement investment.
Thorough due diligence.
Before buying any land, do your due diligence and check out its entitlement potential. You should consider zoning regulations, environmental impact assessments, proximity to amenities, and growth projections.
In addition, you should examine local demographics, economic trends, and government policies that may impact entitlements.
Invest in a style that suits you.
Vanessa began her investment journey by focusing on investing in real estate that worked best for her. Due to her busy schedule, she had no time to flip houses or work with shady property management companies. This led her to consider multi-family and syndications as options. She was completely hooked once she learned how profitable she could be in a completely passive role.
Consequently, she became interested in learning more, becoming a syndicator, and joining a coaching program.
Search for properties that may be of interest.
Ideally, you should look for properties with development potential that may require rezoning, permits, or other entitlements to unlock their true potential.
Location, access to infrastructure, environmental concerns, and surrounding land use are also important factors to consider.
There is no limit to what can be syndicated.
In syndication, investors or limited partners help raise an investment’s equity by purchasing a large asset, Vanessa explains. Like a mortgage, you must pay debt service, but the limited partners are responsible for the rest. These investors receive returns from the operators, who sign the loans, run the business, and maintain the databases.
The great thing about this investment is that once the investor writes their check, it becomes completely passive, adds Vanessa. Your preferred return, which is your cash flow, and some equity on the backend, when you sell or refinance, are awesome. However, syndications are not limited to real estate. Anything can be syndicated, from startups to IPOs to Broadway shows.
Recruit and engage professionals.
In addition to legal, engineering, and planning aspects, the land entitlement process can be complicated. By working with professionals like land use attorneys, urban planners, and environmental consultants, you can streamline the process and minimize potential stumbling blocks.
Become familiar with local authorities and build relationships with them.
Building positive relationships with local officials and stakeholders can be beneficial. The process can be facilitated by gaining support for the project and navigating bureaucratic hurdles effectively.
To avoid saturation, find distinct niches.
Most of Vanessa’s experience is in multi-family homes, but she has also ventured into mobile home parks and self-storage, which can be a great resource if you find the right provider. But, everyone is getting saturated at the moment, says Vanessa. From 2012 onwards, the tailwind might have slowed down. Many more people are looking for deals and want to become syndicators.
However, if you’re very particular about who you work with, there’s always a way.
Conduct a market analysis.
Understanding the market conditions in the area is crucial to making a successful land entitlement investment. In order to make informed decisions, analyze demographic trends, economic indicators, and demand for specific types of developments.
When dealing with land entitlements, be 99% certain
“You’re dealing with the government, the county engineers; it’s a process that usually takes about nine to 18 months from start to finish,” says Vanessa. As such, you shouldn’t buy land until you are 99% certain that it will be saleable: You don’t buy land until you are 99% sure if it will be saleable. And, a strong contract is key.
Having patience and a long-term perspective is essential.
There is no shortcut to land entitlements; patience and long-term vision are required. It can take months or even years for approvals and permits to be granted. Those who persevere, however, can reap significant rewards.
There can be significant returns to be generated by using land entitlements. Investing in land entitlements, however, also carries some risks. It is essential to research land entitlements if you are considering investing in them.
You can also make significant returns with land entitlements by following these tips:
- Understand the market by doing your research.
- Make sure that the land you invest in is in a desirable area.
- Make sure that the land has the potential to be developed in a high-density manner.
- Work with a developer you can trust.
- Wait patiently for the right time to come along.
Investing in land entitlements can provide significant returns if you follow the tips above.
Featured Image Credit: Photo by Chayakorn Lotongkum; Pexels; Thank you!