My favorite types of real estate deals are the ones where I get properties free. The most common way people get free real estate is through inheritance. Unfortunately for me, I have no rich uncles to leave properties for me to inherit.
Real estate is the most powerful wealth creation tool. If used correctly, you can create your own inheritance. Deals involving raw land are some of my favorites, and should be considered by anyone looking to invest in real estate. Here are several types of low- or no-cost land deals and some guidance on how to pursue them.
The opportunities to make money on rural raw land are just as abundant as they are with urban properties, and with fewer usage restrictions. If you look at a map of the U.S., 80%-90% is undeveloped rural land. Yet the competition for these opportunities is virtually non-existent.
Even if you do not have the liquidity to make an initial purchase, you can often structure your acquisition using owner financing. Sellers of rural land are much more open to selling land using seller financing with deferred payments and deferred interest accrual than sellers of urban real estate. I have purchased land with as little as a $1,000 down payment with the first payment not due for 90-180 days.
Timber harvesting can be a source of income to cover your capital investment in raw land. Discuss your plan with a service forester who can help you create a timbering plan. If you have a good timber broker, 90 days should be plenty of time to have timber surveyed, priced, marketed and sold, covering your land cost before your first interest payment is due. This lets you accumulate hundreds or even thousands of acres of raw land with little to no money out of pocket.
With your cost basis now $0, it becomes much easier to hold on to the property for future appreciation. I always recommend reinvesting a portion of your gains from timbering into reseeding of quality timber, to secure future cashflow.
There are numerous inexpensive ways to create ongoing cashflow off your land. If the land is along a highway, you can lease space to a billboard company. You can generate income from cell-tower and antenna use, hunting rights, farming rights or conservation easements. This extra income can help pay property taxes on the land. As one of my good Italian friends would say, it’s “pennies from heaven.”
There are also opportunities to acquire properties free in highly competitive urban markets. Short-platting is one way to “flip” single family homes without doing any actual remodeling work. I cannot tell you how many small houses I have purchased that came with large lots that I can subdivide, sell the house for about the same price that I paid for it, and end up with one or two (or more) lots worth hundreds of thousands of dollars, which I can then sell separately or build on.
In one recent example, I bought a small house for $380,000 that, according to the original city plat from 1891, was really sitting on two lots. In order to subdivide the property, I ordered a survey to trace and reinstate “ghost” lot lines and asked the city to update their GIS map according to the original 1891 plat. The process took just a few days. In the end, I had two subdivided parcels with two tax ID numbers. I immediately sold the house for $380,000, the same price I had paid for it, but also ended up with another single lot valued at $180,000—pure profit. These small infill short-plat deals make money literally in your sleep.
Consider the case of a 3.5-acre wooded parcel near a major interstate, zoned R-10 (low-density residential), with a maximum density of 36 dwelling units and a tax-assessed value of less than $200,000. This lot was owned by the same family for 20 years. During that time, traffic counts swelled to over 40,000 vehicles per day passing this lot.
Although existing zoning was R-10, future land use provided for a mixed-use retail and multi-family, which meant it could be rezoned to its highest and best use. My company purchased the land and an adjacent, residential parcel for a little over $400,000. We took the property through a nine-month rezoning process, spending approximately $70,000 to get the property zoned NX-7 (mixed use). It is now a neighborhood mixed-use site with a capacity of approximately 300 residential units, and the value of the parcel has skyrocketed to $6 million.
I recommend memorizing your local municipality’s unified development ordinance and staying up to date on upcoming changes. Know the code better than your engineers, attorneys and architects do. Small changes to one section of your city’s development ordinances can potentially mean millions of dollars of profit to you.
Real estate is a big money sport, but there are ways to acquire raw land assets at little to no cost that can turn a substantial profit if you know the tricks of the trade.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.