While flipping through the television channels, you probably have come across at least one show on flipping houses. In case you aren’t familiar with the term, “flipping” is purchasing something, making improvements to it, and then reselling it within a short period of time. With regard to houses, flippers will buy a house for below market value, make the necessary improvements to increase its market value, and then sell it — all within the shortest time possible.
Time is a factor because flippers seek to minimize the amount of money they have to pay just to own a house. These holding, or carrying costs, can quickly add up as they include utilities, insurance, loans, etc.
How does flipping apply to land? How can buyers make money flipping land, especially when there isn’t a house or anything that can necessarily be improved? Here are a couple of ways to take advantage of this buy-and-sell technique:
If a land parcel is large enough, with a little paper work and a proper site survey, an investor can take a large piece of land and break it up into smaller pieces. These smaller parcels may be more desirable to a buyer who is looking to build a home but who doesn’t want to care for an overly large piece of property. Let’s take a look at the math on a sample subdivision.
|Initial Large Parcel Purchase Price:
|Number of New Lots:
|Sale Price of Each Lot:
|Total Sale of All Lots:
|Return on Investment:
As you can see, purchasing land and subdividing it can be a pretty solid investment, providing a 66.7 percent return on investment in the above scenario. Any investor out there would jump at the opportunity for that size of return.
Another common real estate investment model is wholesaling. This is finding a property and getting it under contract to buy. However, instead of actually purchasing the property yourself, you find someone else to purchase the same property and then you reassign the initial purchase contract to the new buyer. You assess a fixed fee that gets added to the purchase price. Yes, in this scenario, you are acting as a middleman, and some may ask why the second buyer wouldn’t just go directly to the seller in the first place. However, as the wholesaler, you add value as the one to find the deal in the first place.
For example, if your buyer is a flipper, he or she often is too busy flipping other properties, so they don’t have time to root out good deals. As a wholesaler, you can use unconventional methods of finding great deals on properties (such as finding great property deals on LandCentral) and then connect the buyer with the seller.
The biggest advantage to wholesaling is that typically, it requires very little investment on your part. Because you are reassigning the contract to another buyer, you never actually put any of your own money down. This can be an attractive option for someone looking into real estate investing but who has little money saved.
As you can see, there are a number of ways you can profit from investing in land, without ever touching a shovel or pounding a single nail. With these options in mind, and some additional education and research, anyone can become a land investor regardless of their current socio-economic status.