"An Insider's Guide to Land Investment"
An Insider’s Guide to Land Investment
by Lou Jewell ALC
Accredited Land Consultant
An Insiders Guide is “…probably the best resource I have found regarding all aspects of understanding land ownership, investment and evaluations strategies…
John Charnovich VP, Supply Chain Technology Sara Lee Branded Apparel
"Thanks Lou for sharing with me. I really appreciate you taking the time to continue to teach… even out of the class room." James Sherrill
"Welcome new RLI realtors,
I wanted you to take advantage of any modes of information or teachings flowing thru Lou. I was involved in one of his two day Greensboro classes and enjoyed both days. Lou is a very smart RLI leader and teacher who SHOULD be supported as a candidate and a man whose heart is focused on helping us promote land with confidence and education!" Hunt Sharron
"Lou Jewell's knowledge, industry awareness and regard for practitioner risk management in land specialty, has been instrumental in my learning the land business.” Wendell Bullard, NCAR President 2008
“I found not only a friend and mentor when I met Lou Jewell but someone who truly loves land and its value for investment. He has always been responsive to questions or request for assistance.” Oscar Williamson
“I wish you all the best in your run for V.P. We need people who see the big picture and have the experience of life to implement good ideas.”
President NC RLI Chapter 33
Dr. David Crouse N.C State University has endorsed your work as Accredited Land Consultant at Dan River Real Estate.
I've written this recommendation of your work to share with other LinkedIn users.
Details of the Recommendation: "Lou has been an invaluable partner as together we work to enhance soil literacy in the real estate and land development market. Collaborations include review of short course curricula, speaking engagements, and general brainstorming sessions about other educational opportunities for REALTORS and land brokers."
An Insider’s Guide to Land Investment
HISTORY OF LAND OWNERSHIP (AND LAND OWNERSHIP IN THE U.S.A.)
UNDERSTANDING REALTORS’® LAND CLASSIFICATIONS
THE LANGUAGE OF LAND BROKERAGE (A TO Z DEFINITIONS)
TYPES OF LAND OWNERSHIP (FROM COMMERCIAL TO RURAL)
PURCHASING LAND (CASH VERSUS FINANCING)
TAXATION OF LAND (CAPITAL GAINS, BASIS, 1031)
WHY LAND INVESTMENT (THREE BASIC REASONS)
LAND STRATEGIES (OUTER LOOP, ASSEMBLAGE)
LAND LIQUIDATION (AUCTION, EXCHANGE, THE SELL)
LAND INVESTMENT VS HOME INVESTMENT (THE DIFFERENCE AND WHAT TO ANTICIPATE)
BOUNTY IN AND ON THE LAND
(THE NATURAL AMENITIES)
LAND BROKERAGE RESOURSES (AUCTIONS, REAL ESTATE LISTING, COURT HOUSE, GOVERNMENT)
“THE HIGHEST AND BEST USE”
WORKING WITH A REAL ESTATE LAND BROKER (WHY AND WHAT DO THEY KNOW THAT A RESIDENTIAL BROKER DOESN’T, AND WHAT TO EXPECT)
HOW TO PREPARE TO BUY OR SELL LAND, A STEP-BY-STEP GUIDE
RESOURCES: ENDORSEMENTS, WEB SITES, AND MORE
PRACTICAL KNOWLEDGE: LOU’S LAND 101 SURVIVAL KIT
No book takes form all by itself. Besides the author, most times it is the result of numerous influences in the author’s life, and the cooperative effort of many friends, advisors and teachers. This book is no exception.
I would like to thank all those who helped bring this book to life, in particular the members of my family Beth McCauley-Jewell, my wife, Jonathan Jewell and Kate Jewell and especially my grandfather and father who taught me to appreciate The Land.
So many people read the text and offered suggestions. Thanks to Joel and Nalan Godin, my partners in this endeavor, and to Dale Fulk who teaches the REALTORS® LAND INSTITUTE Land 101 Class with me. Dale is an exceptional Auctioneer. Rick Price, a fellow North Carolina RLI Chapter member contributed information on the “Protective Covenants” and a lot more. Thank you to the members and staff of the REALTORS® LAND INSTITUTE with whom I am proud and honored to be associated. You will not meet a more dedicated group of professional people who truly love Land and all aspects involved. Thank you to Van Coe my banker, advisor and friend who allows me to play at his Stony Knoll Vineyards* and make wine. Three hats in the air to the East Surry Little League 2003 Senior Girls World Series Champions and now the 2005 North Carolina State I-A Fast Pitch Softball Champions, who have required me to yell at them “I love strikes, yes I do!” every strike and more… every game for twelve years. They have truly been an inspiration throughout the writing of this book. Finally, I would like to thank God for this beautiful planet on which we live and acknowledge that we are only caretakers of His wonderful creation. We think when we buy land, it is ours to keep. But truly it is only ours to protect, cherish and pass on to the next person.
I would also like to send a special thanks to my REALTOR® friend, janeAnne Narrin whose editorial commentary helps to emphasize how my experience in land brokerage is related to your needs. A mountain land broker, janeAnne lives in the Appalachians
near Asheville and loves the Land (and land brokerage) as much as I do. I appreciate her dedicated help and the knowledge that we share.
Stony Knoll Vineyards - www.stonyknollvineyards.com a top notch vineyard.
For years, I have had a great appreciation for Land. It probably started in those early seven years of Boy Scouts. We had a very active troop in my hometown of Charlotte, North Carolina. We spent a good deal of time out-of-doors earning our badges. Once I remember adding up all of the days and nights we had camped out. It was almost 365 days and nights. I loved being out on the land, and I sure was proud to receive my Eagle Scout Award on 1964.
Growing up in Charlotte was great. Dad, who was in the real estate business for years, was my mentor, and taught me another kind of appreciation of land, But not the way you might think. You see, from the time I was five, he and Mom deposited me for a summer visit with my grandparents, aunts, uncles and many cousins in Surry County, North Carolina—out in the farm lands.
My grandparents had ten children and I fit right in on their large dairy farm of over 600 acres, held since 1909. They grew tobacco, had dairy barns and chicken houses, and they gave me hands-on opportunities to appreciate the kind of work it takes to make land prosper. I helped harvest the hay and corn, and milk over 200 cows twice a day. And that went on 365 days a year, even when I went back to school in Charlotte.
I spent my childhood on the farm. Every summer from the age of five until I was sixteen, you would find me hard at work there. It wasn’t all work though. I enjoyed the sense of accomplishment and community that came with those days, and I still do.
But, sad to say, time passed and, like so many of us who get immersed in the adult world of making money and raising families, I lost my connection with land.
Twelve years ago, that special appreciation, gained in part from the experiences just described, like fireworks, rekindled itself with a bang. To my surprise, that happened when I followed Dad’s footsteps. I earned my North Carolina Real Estate licenses and chose to focus on Land and Farms. Yes, my romance began, anew.
Over the years I began to see the investment potential in land. In fact, some folks refer to me as that “Dirt Road Developer”. I’ll tell you more about that later on in the book, but for right now, let me just mention what I think has been one of the secrets of my success: An understanding of subdivision laws. That’s the key to knowing how to maximize land usage with the minimal cost. Of course, maximizing the return on investment is rewarding too. And we will talk about how you can do that in the following chapters.
What investing in land is all about is laying the groundwork for success.
Part of my success has to do with creating a team or a “community” of professional folks with whom I cooperate. Maybe I learned about how this works from my early days on the farm, and now am applying it to my real estate practice. Did you know that there is a sixty year old real estate organization I consider to represent the very essence of land brokerage? The name of this organization is the REALTORS® LAND INSTITUTE. Established in 1944, RLI is the only real estate organization dedicated to serving real estate professionals who broker, lease, sell, develop and manage land. It’s an organization of land professionals, and for land professionals. Members who meet advanced education and experiential requirements are awarded the recognized Accredited Land Consultant (ALC) designation, the mark of a land expert.
On November 6, 2004, I was presented in Orlando, Florida, at the National Association National Conference, the prestigious RLI’s Accredited Land Consultant Designation. My ACL certificate number is 1,079. In sixty years, only that small number of ALC Designations has been awarded, so you see why I prize it so highly. Now I am one of nine active ACL’s in North Carolina and one of 322 in the United States. This designation further drives my commitment to land brokerage, and teaching.
In May of 2003, I was invited to attend a new RLI course entitled Land 101. I happened to be one of two practitioners of 56 attendees, specializing in land sales. The rest of the students had little or no land brokerage experience. This reinforced and strengthened my commitment. And I ended up teaching that course!
After five years of instructing this two day course to REALTORS®, timber managers, trust department heads, investors, developers and land owners, I received requests to write this book. My purpose in writing it is to assist anyone who wants and has the ability to own a piece of God’s given land, whether large or small. There are very few books that address this unique subject. I hope that you and others will benefit from what you find in these pages. My favorite saying in my class and I say it often is: “I hate houses!” All one million plus REALTORS® are trained to sell houses, but not all REALTORS® are trained to sell land.
WHO AM I?
I am the basis of all wealth, the heritage of the wise, the thrifty and prudent.
I am the poor person’s joy and comfort, the rich person’s prize. The right hand of capital, the silent partner of thousands of successful people.
I am the solace of the widow, the comfort of old age, the cornerstone of security against misfortune and want. I am handed down through generations, as a possession of great value.
I am the choicest fruit of labor, the safest collateral and yet I am humble. I stand before every person bidding them to know me for what I am and asking them to possess me.
I am quietly growing in value through countless days. Though, I might seem dormant, my worth increases, never failing, never ceasing. Time is my aid and the ever increasing population adds to my gain. I defy fire and the elements, for they cannot destroy me.
My possessors learn to believe in me and invariable they become envied by those that have passed me by. While all other things wither and decay, I alone survive. The centuries find me younger, always increasing in strength. All oil and minerals come from me. I am the producer of food, building materials and the home to every living thing. I serve as the foundation for homes, factories, banks and stores.
I have not been produced for millions of years, yet, I am so common that thousands, unthinking and unknowingly, pass me by.
Who am I? “I AM THE LAND.”
HISTORY OF LAND OWNERSHIP
( AND LAND OWNERSHIP IN THE U.S.A.)
“A nation may be said to consist of its territory, its people and its laws. The territory is the only part which is of certain durability. One generation passed away and another generation cometh, but the earth abideth forever.” Abraham Lincoln 1862
In the beginning, God made heaven and earth. This is where it all started. If fact, the first “Land Transaction” is mentioned in Genesis 12:7 “And the LORD appeared upon Abram, and said, Unto thy seed will I give the Land: and there build he an altar unto the LORD, who appeared unto him”. Further, Genesis 13:15 “For all the Land which thou seest, to thee will I give it, and to thy seed for ever”. Genesis 13:17 “Arise, walk through the Land in the length of it and in the breadth of it; for I will give it unto thee”. Genesis 13:17 “And he said unto him, I (am) the LORD that brought thee out of Ur of the Chaldees, to give the this Land to inherit it”.
The phrase “Terra firma”, or “under all is the land” not only encompasses the very ground of human existence on earth, but all man has acquired and fought for. Throughout history, from the beginning until today, man created causes to acquire land and land assets. But human goals were not the only factor. Changing weather patterns also forced man to find “greener pastures”.
As time went on, the instinct for survival and a longing for power led leaders of tribes and nations to acquire more and more land. There is intrinsic value in land, in its natural resources and territory. History is full of accounts of people famous and infamous who wanted control all over the world. Even today, nations fight, as they have for centuries, for land, its assets and for territorial control. Land ownership is a huge influence when it comes to who has the greatest political power.
Since there is no more land being made and population ever increases, there is an unfolding scenario with concern to that primary asset. Taking it to the human level, for example, I have heard that some developers find it harder and harder to locate land on which to build. I’ve even heard that in certain metropolitan areas, there is no more developable land.
Think about Manhattan, New York, it was built out before the end of the 19th century.
In Telluride, Colorado there are less than 1,680 acres left to develop. Lots are priced at around $1,000,000. Orlando, Florida and Las Vegas, Nevada are the two fastest growing areas in the country. Vast tracts of rural farm land or desert are being developed at light-speed, and folks are paying vast amounts of money for that land.
Let’s take a look at the territory and land ownership in the U.S. The land area of the United States including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands is 1.891 billion acres of land with 49 million acres of inland lakes and waterways. Native Americans own 73% or 1.375 billion acres of the total. Only three per cent of the nation’s people own or control 97% of its privately owned land. In the lower 48 states, 1.375 billion acres is rural land. Developed land covers 92 million acres, or less than seven per cent of the total area in the United States. (Source: USDA/NRCS “Natural Resources Inventory: Highlights,” p.1 January 2001)
How did we get to where we are today? As you know, the French and the British along with Spanish explorers are largely credited with setting and mapping most of what we know today as the United States of America. Over time, the British acquired and controlled more and more land. They expanded their control by granting charters to wealthy British companies to provide land grants. These companies like Plymouth Company, Virginia Company, and Massachusetts Bay Company among others acted as agents for the Crown and provided land rights to its loyal friends. I suppose in a way you might think of them as the very first land brokerage on our new continent.
The French, Spanish who conquered the Inca and Mayan peoples had a hand in land control. The French claimed huge sections of land from Canada to Louisiana. Spain controlled today’s Florida, Texas, Nevada, California and New Mexico were in that mix. Mexico laid claim to Colorado, California, Arizona, New Mexico, and Utah. Over time, the United States, either by war or purchase, gained control of these territories.
From the time when the thirteen colonies ceded land between the Appalachian Mountains and the Mississippi River, a Federal land ownership and management program existed in the United States. As the U.S.A grew, so did the program. Between the time of the Louisiana Purchase (1803) and the Alaska acquisition (1867,) the federal government acquired 1.8 billion acres of land. All but 700 million acres of that land has been granted or sold through private and state ownership, starting with eliminating Revolutionary War debts, and financing the new Republic prior to the Louisiana Purchase. Our early leaders also created state boundaries and opened up territories using incentives like the Homestead Act of 1862 and the General Mining law of 1872.
The Federal government can “grant” and it can also preserve for future generations. Over the years, our government has established national parks, wildlife preserves and wildlife refuges. It has also set aside large acreages for military installations. Today, our duly elected legislators and lobbyists alike keep an eye on our national spoils for acquisition or disbursement of our federal land.
There are private owners of land, large and small. It is a great investment. Media mogul, Ted Turner sure thinks so. He is the largest private land owner in the United States, with 2,00,000 acres across several states. The estimated value: $750,000,000.00!
Private ownership of land does not exist in indigenous groups that live by hunting, fishing, or herding. Before white settlement in America, for example, the whole tribe claimed, occupied and controlled its territory or its land, with each tribesman having equal access to it and equal rights to its use. In early Europe, peoples living in village communities did have individual allotments of land for cultivation. Colonized by Europeans, the United States modeled its land distribution on historical roots. Today, in Western civilizations, private ownership of property is supported by legal rights that preclude others from using the land.
It may interest you to know that the ten largest private land holders own over 10.6 million acres collectively. These holdings are surpassed by the Federal government. The U.S. government today possesses over 624 million acres, or about twenty-seven per cent of the country’s land.
What does all this mean to REALTORS® and investors in land and land stewardship? It means that even today there are still tremendous opportunities for private ownership of land.
UNDERSTANDING REALTORS’® LAND CLASSIFICATIONS
(DIFFERENT TYPES OF LAND)
“Soil is the mother of man” Henry Wallace
“Land is the only thing in the world that amounts to anything, for tis’ the only thing that last, and don’t you be forgetting it! ‘tis the only thing worth working for, worth fighting for – worth dying for” Gerald O’Hara to Katie Scarlett “Gone with the Wind”
As our nation has evolved, so has land usage. It was not too many years ago that our country was an agrarian society. If fact, historically most counties were agrarian with food production and harvesting as their economic base. Food then, as it is today, is vital to our existence. Land used to produce crops (agricultural land) can be owned by individuals or groups, by large and small companies, and by corporations and trusts. Agricultural land also can be leased or rented. Currently, one billion aces of land in the U.S. is devoted to agricultural use, with over 470 million acres of cropland and about 600 million being acres of grazing/pasture land. In addition, 750 million acres is timber land.
Rural land usually does not create great income. It is outside heavily populated areas, but it is where we see the wave of growth as our population expands. Eventually, rural land does transform into urban land, so it has substantial investment potential. As time goes on, urban land may transform from residential to commercial or from commercial to residential use. As population demands shift, an abandoned industrial park may become a “Neo-classic” development. Old factories become condos. Neighborhoods gentrify and housing projects make way to airport expansion. And so it goes.
Here are some examples of land use:
Commercial use of land. Industrial parks springing up along the highways, are examples of commercial use of land. This is land that has a strategic location, or as we say “location, location, location”. Commercial land creates a profit. Most commercial land is leased, by the way.
Hospitality and Institutional use. Another use for land is called “hospitality”, or land used for hotel/motel purposes. And there is also “institutional” land— hospitals, schools, and rescue and/or fire protection.
Recreational use. This is land used for recreational purposes— resorts, hunting, fishing clubs, amusement parks, golf, tennis, wildlife parks, and as mentioned, land set aside for National and State Parks which is protected by laws.
In terms of land use, REALTORS® who are Land Specialists have a deep interest and investment in knowing about methods of planning and financing infrastructure to accommodate growth (e.g., schools, parks, roads, water, sewer, etc.), growth limitations, "smart growth," affordable housing issues and environmental protection. Land use issues including those at national, state and local levels are of great interest to us. We are likely to be found identifying challenges to better land use and development, researching best practices from across the country and offering our suggestions to improve land use patterns. We are stakeholders in a process that involves the resolutions of complex land use, development and redevelopment challenges
The practice of real estate professionals is as diverse as the interests of its members. Whether focusing on retail, residential, resort, office and industrial development; real estate finance and industry structure; transportation and parking; and general real estate practice, we are all concerned with land use. Remember I said. “Under all is the land”. Land use policy and priorities including smart growth, housing policy and programs, urban revitalization, environmental issues, community initiatives and interaction and transportation are all of concern and interest to us.
Although I live in a pastoral region in North Carolina, I keep track of development issues in urban markets. It interests me to see that, in many communities, private developers are joining with nonprofit community developers to create profitable ventures that benefit under served populations. I regularly attend the planning commission meetings in our local community, and have spoken at each executive committee meeting participating in exchange of information about public and private interests.
As a REALTOR® Land Specialist it’s all part of my professional practice. We all have a stake in being informed.
THE LANGUAGE OF LAND BROKERAGE
(A TO Z DEFINITIONS)
“There is not a full man who does not own a piece of land”
The following glossary I’ve placed here in the text rather than at the end in order to facilitate an understanding of the language of Land as you continue.
A unit used in land measurement to equal 160 square rods or
square feet that can be any shape. There are 640 acres in a square mile.
Any parcel of land that can be measured in terms of acres. An area of land used for some purpose—farm, residential, etc.
ASSEMBLAGE: Is the acquisition of adjoining properties into one ownership.
ATTRITION RATE: The rate at which tracts of land, or more specifically lots, are sold over a specified rate.
AUCTION: A function of the liquidation of real property at a specific time and place.
BASIS: A tax term, which refers to the original or acquisition value of a property,(plus or minus and adjustments), used to determine the amount of tax that will be assessed. The basis is deducted from the sales price of the property when it is sold to determine the profit or loss.
A steep or high bank or cliff.
Very wet spongy ground not able to support much weight.
Additional money or property that is received in a 1031 Like Kind Exchange. .Although the exchange of business or investment property is of Like Kind, it is not equal in value. You see this in the IRS code 1031 where no tax liability results from an exchange solely of Like Kind property used in a business or trade or held for investment. When an exchange includes boot, under Section 1245, the boot will be treated as ordinary income.
The perimeters or limits of a parcel of land as fixed by legal description which is usually a metes and bounds description (survey).
A strip of land separating one parcel of land from another parcel.
CONSERVATION LAND TRUST:
A non-profit organization with the commitment and resources to profit the conservation features of privately and publicly owned land.
A division of a state which may have one or more cities.
Land plowed or spaded.
Provisions included in a deed that limits the grantee in the use of the conveyed property. They encumber the use of land for a period of time. (A personal goal of mine is to change the term to Protective Covenants. I would rather be protected than be restricted).
Is a right that is created by a grant, agreement, prescription, reservation, or necessary implication, which one has in the land of another. Easements are also established to protect the land, for example, a land conservation easement. Note: There are “easements” and there are “easements”. Be cautioned when pursuing land with easements. One big concern is the “burden” of an easement. How may people access the property over the easement? A well intended understanding can become very costly. REALTORS® might choose to recommend to their clients that they get at least two opinions.
Also an easement used to cross a parcel of land to benefit another. This type of easement will transfer with the property. Old wagon trails or cart-ways are examples.
EASEMENT BY CONDEMNATION: Government can exercise its rights under eminent domain to create a new easement. New road construction is an example.
EASEMENT BY PRESCRIPTION:
This type of easement is granted by a court of jurisdiction where it is proven that continuous and open use of the property has been used unchallenged for a period of time. It could be twenty years and varies by state.
EASEMENT IN GROSS:
These easements benefit a person or maybe a company. Examples would be power, telephone, cable, water and sewer.
An area of cleared land often bounded by fences or a stretch of open land.
A land parcel having the configuration of an extended flag and pole. The pole is the access to the site which is usually located in the rear of another lot fronting a main street or road.
Are lowlands adjacent to streams, rivers, lakes, oceans that may flood one percent or higher in a given year. Flood plain maps area available in all jurisdictions.
This land must be at least one acre and is forested by at least ten percent in trees that is of any size and not developed for non-forest use.
Is the length of a property abutting a street, road or body of water; the number of lineal feet that fronts the street, road or water.
A metric unit of land equal to 2.47 acres.
HIGHEST AND BEST USE:
That use among all legally and permissible and practically probable uses that will result in the highest and best use of land.
Real property whose value has been enhanced by the addition of on-site improvements such as, roads, sewer, utilities, etc.; as distinguished from Raw Land.
Land supplied with water by artificial means such as ditches or canals.
Any portion, large or small, of the surface of the earth, considered by itself, or as belonging to an individual, or a people.
Another name for an installment purchase contract, by which the buyer obtains equitable title (the right to use the property) while the seller retains legal title as security for payment on the balance of the land.
The description of a particular land tract.
The market value of land; the price of land services. This is crop land that is rented.
A creative financing device often used with raw land which a developer wants to improve. The developer sells the land to an investor who leases back the land to the developer under a long-time term net lease and subordinates his fee ownership to the lender providing development financing.
An association organized by common owners of real property, which holds title to the real property in the name of one or more trustees for the benefit of the owners, whose beneficial interest may be represented by trust certificates.
Real property having no access to a public right-of-way.
A description complete enough that an independent surveyor could locate and identify a specific piece of real property.
Land which is of little value because of some deficiency, such as poor access, or land with inadequate rain fall, or steep terrain.
The highest price established in terms of money, which a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with the knowledge of all the uses to which the property is adapted and for which it is capable of being used.
METES AND BOUNDS:
A common method of land description that identifies a property by specifying the shape and boundary dimensions of the parcel, using terminal points and angles.
The right to subsurface land and profits. Normally, when real property is conveyed, the grantee receives all rights and title to the land including everything above and below the surface, unless excepted by the grantor.
The process of restoring, creating, enhancing, or preserving wetlands, which are set aside to compensate for future conversions of wetlands during development activates. This does not have to be the same tract of land and in most cases is not.
NET SHARE LEASE:
A land lease where the owner pays a certain percentage of the production from the property and the tenant pays all operating cost.
A permitted use which was lawfully established and maintained but which no longer conforms to the current use regulations because of a change in the zoning or land use laws.
A portion of land used as a general term to describe land. It can be a portion of land or a lot.
PASTURE: Land used for grazing animals or grown for hay.
PERC TEST (PERCOLATION):
A test to determine the capability of the soil to absorb liquid, for the construction of a septic system. Used when city sewer systems are not available. This test is most commonly preformed in rural areas.
A survey, which divides up two or more parcels of land, but is recorded at the court house and assigned a Plat Book and Page. It aids the legal description by being able to refer to book and page instead of a metes and bounds and description.
The merging or consolidating of adjacent lots into one larger lot, with the consequent results of improved usability and increased value; also called assemblage.
The rights and interest a person has in the property owned; not, in the technical sense, the property itself. These rights include the right to possess, to use, to encumber, to transfer and to exclude, called “bundle of rights”.
Unimproved land in its unused, natural state prior to the construction of any improvements.
The physical land and appurtenances, including any structures; for all practical purposes synonymous with real property.
All land and appurtenances to land, including buildings, structures, fixtures, fences and improvements erected upon or affixed to the same, excluding any crops.
Land and everything permanently affixed thereto.
When subdividing a parcel of land, any portion remaining is “remainder land”.
The premise that the more profit a location will generate, the greater the land value.
(Sometimes referred to as “Deeded right-of-way”), An easement over the lands of the property owner that provides legal access to another tract or several tracts of land. Anything other than a deeded right-of –way should be avoided, since informal agreements may be changed at will.
Are those rights and obligations which are incidental to ownership of land adjacent to or abutting on watercourses such as rivers, streams or ponds and lakes.
SECTION 1031 LIKE KIND EXCHANGE:
A 1031 tax deferred property exchange is an exchange in which capital gains deferral is available to real estate owners who sell their investments, rental or vacation real estate, and reinvest the net proceeds in other income producing real estate.
A sewage settling tank in which the solid matter of sewage is disintegrated by bacteria and liquids are discharged by gravity into a drain or leaching field underground.
Management practices that ensure the health and growth of forests for future generations.
A traditional unit of area. One square rod is equal to 272.25 square feet, 30.25 square yards or 25.2929 square meters
Land that is divided or proposed to be divided into one or more tracts, parcels or units of interest. When a survey is recorded at the court house, it then becomes a “plat”.
The results in document form of a scientific means of describing a deed of record or creating a parcel or parcels of land. The record correlates with the actual land markers, and describes a bounty of land.
Trees of a size, quantity, or quality as to make them marketable when harvested from the land on which they live.
A type of insurance that protects land owners against any claims against their ownership after the property is purchased and a deed is recorded. REALTORS* should recommend title insurance on any type of real estate purchase, including land.
A term used to describe the general terrain or the lay of the land. Each tract of land, on a “topo” map has its own unique “finger print”.
Rectangular survey term referring to a specific measurement consisting of 6 square miles or 36 sections to a township (typically found west of the Mississippi River).
Ridge dividing the areas drained by different river systems and or the entire area drained by a river and its tributaries.
Areas where water covers the soil or is present at, or near the surface, all year or for varying periods during the year including the growing seasons.
The locally adopted regulations that set the manner in which privately owned land might be used within a jurisdiction. Zoning regulates structures, and uses of property within a designated district or zone. It affects such things as use of the land types of structures permitted, building heights, setbacks and density.
TYPES OF LAND OWNERSHIP
(From Commercial to Rural)
“Ninety percent of all millionaires become so through owning real estate.”
“The major fortunes in America have been made in land”
John D. Rockefeller
There are many types of land ownership and many different reasons for owning land. In this book, we are considering private ownership of land as opposed to federal or institutional land ownership.
Most people who own a home forget that their home is on something called “Land”. So whether we consciously are aware of it or not, a lot of people own land.
Often, land ownership is acquired by a way of inheritance. We regularly see this situation where rural farm land is involved. As an example, my great grandfather started buying additional land (other than he, himself inherited from his father) in 1909. A portion of this land, in Surry County, North Carolina, came to my grandfather who acquired additional land until 1929. Grandpa secured eight hundred and eighty-two acres (882). Grandpa had ten children. He left approximately sixty acres to each of his children. My mother was one of those children. She sold her portion to one of her brothers. One of my uncles has now passed down 10 acres each to his three children, (my cousins) and two of them have conveyed two acres to their children, and one of their great-grandchildren has been conveyed one acre of the two.
So we can account for six generations who have benefited from land investment that began a century ago. Today, over six hundred acres is still in our family, most of it is rural or agricultural land. It is a true “land legacy”. And you can provide the same benefits for your kids and grandkids.
“Agricultural land” retains importance today. However, less land is held by the families. Large agriculture companies own much land today. Agricultural land is usually ranch, farm, or timber land used to generate income. Some agricultural land generates additional revenue from rent or lease of the land for hunting and/or fishing. In fact, hunting and fishing preserves are becoming popular recreational businesses for owners and investors.
Coming from generations of a family who appreciated the value in Land you can see why as a REALTOR® some of my most preferred real estate transactions involve rural land.
More and more people, who have made their money in metropolitan areas, now are retiring. These urban investors seek a special place “to nest” and are coming to see the excellent value in rural areas around the country. They hope to own a small to medium size tract of land. I call the land they are seeking “mini farms” or “farmettes”.
Usually, unlike agricultural land, where investors are looking to create income through appropriate use of the land, rural land may, or may not create income. Income generation may not be so important to the rural land-seeker who simply may be selecting land on which to build a retirement or second home. It is interesting to note that these days, a good number of rural land buyers are choosing to act as stewards of a beautiful tract of land. They have in mind leaving a land legacy for future generations to enjoy. They may choose to set this aside as a private estate, or may be looking to environmentally-sensitive development in the future, or may simply be looking at land for its value in terms of investment.
Rural land seekers may find some inconveniences such as “critters”, miles to the nearest store, planning for and installing well and septic systems. But having a trout stream in your front yard or deer on your “back forty” may compensate for all those days spent in traffic jams, trains or subways, all the discomfort, and all the pollution. Life is (at last) to be enjoyed!
But let’s not forget the value of recreational use of rural land: hunting and fishing lodges, resorts, R.V. parks, lake or river or beach fun, and swimming and camping. Folks get so much out of relating to land when they go to dude ranches, amusement parks, four wheeling parks, and so forth. In the real estate business, we are seeing more and more interest in such use and more and more opportunity for investors. An R.V. Park could be seen as one example of the “highest and best” use of land because, in this instance, land can be subdivided into many rentable small sections, thus increasing its value. Keep that in mind the next time you’re out my way.
The general public is familiar with the use of at one time rural, now “residential” land. We can see how this transformation occurred when looking at such examples as the early U.S. settlements of Philadelphia, Boston, and Charleston. Remember, all land was originally rural until we developed it into various uses including small subdivisions of a few homes or tract subdivisions with hundreds of homes. Residential land can be used, as well, for multi family structures, duplexes, quads, apartment complexes, condominiums, and so forth.
Finally, ownership of land can include its use for commercial purposes such as: Office complexes, medical facilities, shopping centers and strip developments, retirement or senior living centers, industrial parks, retail, institutional, and more. I consider the commercial use of land for self storage sites very attractive. It can work as yet another “highest and best use” model, where we partition land into small parcels and maximize use for a high return.
(CASH VS. FINANCING)
“The best investment on earth is earth.” Louis Glickman
Cash is “king” in most business transactions. But to me, paying cash is more about “ego” than practicality when it comes to buying land. Land is a true investment, and that holds true whether you own it outright, or you are financing it.
Land is easy to leverage. In contrast, imagine calling your stock broker and asking him or her to buy $100,000 worth of stock and leaving instructions to put fifteen percent down and finance the balance of the stock. I bet he or she would hang the phone up on you, or at least laughingly say, “You’ve got to be kidding!”
In addition, financing land is very different than financing residential properties. Most traditional land produces little or no income. Many lenders are hesitant to finance land or want more equity in the loan. Some lenders may require additional security and full recourse rights to the borrower and so people seeking financing can get into an area of “non-conventional” loans. One of the best ways I know is through Farm Credit Services www.farmcredit.com.
The Farm Credit System was created by Congress through the Farm Loan Act of 1916 which provided dependable sources of credit and financial services for farmers, ranchers and/or people desiring country living. Today, the Farm Credit System, nationwide, has developed into a total service provider with services to include insurance, appraisal, tax planning and management, agribusiness loans and services, and more. This is the best kept secret for lovers of land. Farm Credit is my partner.
Alternative financing may be permanent, balloon, construction, joint ventures, real estate investment trust, limited partnerships, participation loans, seller-financing, purchase lease-backs and bond loans. Some of these financing strategies/solutions are involved, but all of them, when applied, will get the job done. Where does the land buyer go for financing? Money sources may include, the seller, commercial banks, saving and loans, investment and mortgage banks, mutual savings banks, life insurance companies, pension funds, real estate investment trusts, governmental agencies, trust and revenue bonds. Note: Most of these sources are for more sophisticated land acquisitions.
For the typical rural land investor, there are easy alternatives for financing vacant land.
Paying cash may have its advantages in the eyes of the buyer, but for the seller, who often has a low basis in the property because it was purchased low or it was inherited. This method has drawbacks. It is likely that the seller owes taxes on the sale of the property unless the property is part of a 1031 Like Kind Exchange.
On the other hand, seller financing can benefit both parties. Sellers can pay their tax obligations over a period of time, while accruing interest. Buyers might have the same advantage as they would by using a bank financing arrangements.
Another way to tie up an attractive acreage is to “option” the property. Here a legal document is drawn up stating that the buyer will purchase the seller’s property for a set amount in a certain period of time, usually one to three years. Buyer may or may not have the rights to sell the option during the time frame set out. Option money, sometimes called “purchase money contract” is deposited with the seller and is non-refundable if the property is not purchased within terms set forth, but may be credited towards the purchase. When agreed upon, this final document should be recorded in the jurisdictional courthouse! Over the years, I’ve seen the “purchase money contract” in commercial land acquisitions. It can also be effective for rural land. When a buyer is interested in a large tract of land, but is unable to purchase the entire tract at that time, the buyer can purchase a portion of the property outright, and option the balance, for example.
“First right of refusal” is another means of tying up land. Here the buyers’ attorney draws up a legal document in which the seller agrees, for a reasonable period of time, not to sell this property without first notifying the buyers of the seller’s intent to sell. The buyer then may exercise the purchase based on the original terms or renegotiate new ones. This may be similar to the above scenario. Or maybe your next-door neighbors indicated that they may sell their property in the future. This is a way you can protect your interest in their property.
TAXATION OF LAND
(CAPITAL GAINS, BASIS, 1031)
“The small landholders are the most precious part of a state.”
Call on the experts when you are dealing with taxation of the land. That’s my advice. And find the best tax accountant, CPA, or the best tax attorney whether you are buying or selling land. Employ their services! Even if is a small tract of land; I strongly advise that you seek advice. I recommend interviewing several tax pros before making a decision. I tell my clients to talk with others who have gone through the process when it comes to issues of capital gains, 1031 Like Kind Exchanges, rent, ordinary income, and so forth.
More advice— if you are working with Land, you need to understand a few important terms, for example, “basis”. Basis is tax term. It refers to the original or acquisition value of a property, used to determine the amount of tax that will be assessed. The basis is deducted from the sales price of the property when it is sold to determine the profit or loss. A “basis” is established whether land is inherited or purchased. The length of the holding period does not matter so much as the established value when the property was acquired. When the property is then sold, the general rule is the net sales price is subtracted out of the “basis” value, less expenses incurred. The difference is “capital gains”. This amount less all expenses, including Realtor’s® commission, is deducted and the balance is the taxable portion. You might want to check this with your accountant. Investment property held less than one year is taxed as ordinary income to the seller. Property held for one year or longer is taxed at the long term capital rate when sold.
If you are an individual, you will pay the capital gain rate, at fifteen percent. If you are a licensed real estate agent and you are turning property frequently, you will pay ordinary income at your marginal tax rate which, may be twenty-eight percent, because you are a “dealer” or expert in the eyes of the IRS. It seems to me that this system of taxation is a bit rough on the hard-working REALTOR®. Maybe that’s one reason why all too few of us, though good-hearted, are not wealthy. But keep reading and I’ll try to clue you in on how to put some dollars in your jeans.
A REALTOR® who works with property investment clients over a period of time may talk with them about the advantages/disadvantages of certain tools for deferring taxes and building equity in their land acquisitions. Two such tools are the Self-Directed IRA and a process known as the 1031 Like-Kind Exchange. Either of these tools requires the client to seek professional counsel. Tax Deferred or 1031 Exchanges are designed to, over time, defer capital gain taxes that would be due upon sale. Clients can preserve equity and build equity in their land investments by using these tools. The IRS Code states: “No gain or loss shall be recognized on the exchange of property held for productive use in trade or business or for investment, if such property is exchanged solely for investment, if such property is exchanged solely for property of like-kind, which is to be held either for productive use in trade or business or for investment.”
Exchanges have four basic rules: 1. Property must be held for investment or productive use in trade or business. 2. Property must be exchanged for like-kind property. 3. Replacement properties must be identified within 45 days after the relinquished property is transferred. 4. The exchanged properties must be completed by the earlier of 180 days or the tax return due date.
Some properties do NOT qualify for the Like Kind Exchange. While properties held for business use (1231) qualify, and properties held for investment qualify, properties held for personal use do NOT qualify. Property held for sale as “dealer property” does not qualify for the 1031 Like Kind Exchange.
Just a few notes here…Real estate used in trade or business is referred to as 1231 Exchange. Land is generally described as 1221 Property and can be exchanged for a 1221 property and in vice versa. Real estate property held investment for investment is referred to as 1221 Exchange.
These concepts can consume many volumes. Find and interview experts in the areas of Self-directed IRAs and 1031 Like Kind Exchanges before advising/referring clients. Your clients MUST have a Qualified Intermediary to successfully navigate through the 1031 process where large amounts of investment monies can be involved. If you are going to preserve the area of real estate investment, you need to be able to direct your clients to the support system they (and you) will form to in order to have successful transactions.
The National Association of REALTORS offers a field guide to 1031 investments at:
http://www.realtor.org/libweb.nsf/pages/fg408 This field guide provides access to articles, manuals, forms, ideas, and other information to help you build a good basic understanding of the process and how it works.
The REALTORS® Land Institute offers excellent courses on 1031 Exchange, so I recommend you check that out too. Go to www.rliland.com “Education”
WHY LAND INVESTMENTS
(THREE BASIC REASONS)
“Buy land. They ain’t makin’ any more of the stuff.”
Why should anyone invest in land? It is very simple and Will Rogers stated it well. “They ain’t makin’ any more…”. As our world population continues to increase, people will seek and demand more land. Since there is a finite supply, it stands to reason that land will increase in value. So, that old “law of supply and demand” that we all learned in school, turns out to make sense in the adult world. It is at the heart of the wise investor’s decision-making process, and why we choose to buy/invest in land.
Land investment is one of a few types of investments that can be leveraged. I’ve said it before, and I’ll say it again—you can go to a conventional or land bank, or a mortgage company or possibly the owner of the land and borrow a lot of money with very little down and control a lot of valuable and appreciating property. How many investments can you do that with?
Generally speaking, land investments are as “solid as the rocks found there”. Land is fixed in location and will never move. Land generally requires little upkeep or repair. Land is not made out of paper that is printed in various denominations, and can fade. The value of land is stable. Remember the stock market crashes, the silver and gold run-up and crash, worthless bonds, corporate bankruptcies, and you will come to see the big pluses associated with investing in land. And land just sits there appreciating. I Love Land!
Back in the 1950’s, Duke Power built dams to create Lake Norman just north of Charlotte, North Carolina. Dad, who was a real estate agent back then, told me that Duke Power was offering lake front lots for fifty dollars a lot and begging people to buy them. Now fifty years later, some of these same lots are transferring for one million dollars and higher. I sure wish he’d bought more of those lots!
These are easy concepts to understand. They make sense. There are, and always have been opportunities to buy and invest in land. And so long as the earth survives, there always will be.
The choice to invest in land is a wise one. Rather than putting your hard-earned money and energy into improved real estate like single family homes, apartment buildings, or other types of commercial real estate, you can relax and watch as, over time, you reap the benefits.
What are those benefits?
Over the years I have seen larger profits in land sales by every measure than investments in improved real estate. Remember, land investments are pure real estate purchases. By this I mean, you are investing only in the real property. You are not looking at a depreciating asset like a warehouse on a small plot of land. I don't know to how many clients I have pointed out that land requires no serious maintenance. By this I mean that you don't have to concern yourself with improvements, or updates, or remodeling that you do when you get into buildings. Land is gentle on your cash flow and doesn't drain your bank account.
Another benefit, of which I have first-hand knowledge, is the solid cash flow land can give you. A knowledgeable REALTOR® Land Specialist can point you in the "right" direction when it comes to buying land at good prices and refer you to sources for financing that land purchase. Remember Farm Credit Services. The same REALTOR® knows how to minimize holding costs, and may be willing to tell you how to find a steady monthly income through land investment such as leasing pasture land to farmers.
To the person who says: “I wish I had invested in land back when, I could have retired,” I say… ”Well fellow, it still isn’t too late to start!” There are tremendous opportunities out there everyday. Just take a cue from Ted Turner or, better yet, see me! I might know something that you do not know, and I like to share good news, as you will see in the next chapters.
(OUTER LOOP, ASSEMBLEGE)
“Find out where the people are going and buy land before they get there.”
Will Rogers hit the nail on the head when he said, “Find out where the people are going and buy land before they get there.” You and I can attest to that. Just in the years since our youth, most of us have witnessed phenomenal growth even if we lived in rural areas.
As we have grown up, we have observed land outside the city suddenly starting to develop, a two lane road grew into a four lane road, and there was more traffic going somewhere.
As time goes on, that development will creep out farther and farther and farther. There’s no stopping it. Watch and you will see how the development of two towns runs together or the growth starts in another direction.
So here is some more excellent advice. Study the past growth of a community, then, anticipate the next growth circle or the next direction of growth. Like rings in the tree the growth can be observed. Cities tend to grow toward unusual or natural aesthetic topography. Towns tend to spring up around affluent residential areas and or office facilities.
A word to the wise REALTOR® and investors: Do a time study of the growth in your area, say for the past five years. Then project the potential growth area for the next five years. Look at, and anticipate the attrition rate of growth in that undeveloped area. If property prices are moving up closer in, then look further outside that area for less expensive land. You may have a longer holding time, but you can make that part of your investment goal objectives.
Currently, a tract developer in Wilmington, North Carolina is developing 600 acres fifteen miles west of the new developments. He is anticipating future growth and is taking advantage of lower land cost. Thinking “outside the box” will reward him.
When buying land, I recommend to my buyers that they evaluate the investment as if they were selling the property. Just think about it, none of us really own God’s creation. We are stewards, passing along the title to the next generation. Someday the land acquisition being made will be passed along. Therefore, you should evaluate the property as to its “Highest and Best Use”. Whether that use is as a land legacy, or selling timber or mineral rights, the most responsible use of the land is often in the eye of the beholder.
Value may be found in acquiring one or more contiguous acreages, adding those to the primary property, or be seen more in commercial or sub-division properties, or in the creation of a family bounty. I Love Land.
(AUCTION, EXCHANGE, THE SELL)
“The right to sell is one of the rights of property.”
Thomas Jefferson to James Madison 1789
I always tell folks that the true value of land is what a person will pay for it on any given day. But what if an investor must sell land quickly? An auction and the research leading up to it will provide the best method to determine the true value of land. If a seller needs to liquidate property in a timely fashion, the auctioneer can be counted on to provide a valuable service. Remember, an auction establishes true market value at that time and place. Whoever said that Land is not liquid?
Have you ever-wondered why auctions work? Why would anyone sell anything at auction? Why would anyone buy at an auction? This chapter will answer those questions, and give you an overview of the whole process. Don’t get me wrong, this is not a check list for conducting an auction, or a quick manual on how to hire an auctioneer. After reading this chapter you sure will not be an auctioneer! But you will have an idea about the benefits of auction marketing. You may, after reading this, consider selling or buying at auction.
Auctions have been around for centuries. Real estate, machinery, equipment, antiques, livestock and many other assets are sold at auction. Auctions are no longer simply a way to dispose of bankruptcy or foreclosure type properties: They are a proven way to sell real estate.
Auctions vs. Brokerage
Ø Must have a real estate license is most states.
Ø The auctioneer should be a REALTOR® but this is not required.
Ø Should belong to professional associations, both REALTOR® and Auctioneer.
Ø Should have professional designations in their related field of expertise.
Ø Must make disclosures: agency, property conditions, and so forth.
Compare the Facts about Auctions and Traditional Brokerage
> Need to be licensed X X
> Should be a member of professional association X X
> Should have professional designations X X
> Must make disclosure: agency, property conditions X X
> No maximum sales price X
> Seller determines sales date X
> Marketing campaign focuses on one property X
> Price is negotiated up X
> Property can be sold “AS-IS” X X
> Multiple offers at one time X
> Pre-sale due diligence X
> Cannot determine sale date X
> Buyer may have multiple contingencies X
> Post offer due diligence X
> Possibility of no offers X
What Do Most Sellers Want?
Ø To sell their property for market value
Ø To get the most money possible
Ø To convert assets into cash
Ø Stop maintenance, insurance, repairs, vandalism of assets
Ø Sell in a short period of time
Why Do Auctions Work for the Benefit of Sellers?
Auctions have a deadline! That’s right, a deadline. You are probably saying, “So what?” But think about it! That deadline creates urgency. It means that if buyers have any interest in purchasing a property, they must do so by a designated date, time and place. And think about this, too. At the auction, sellers get competing offers all at once! Each bid is an offer to purchase.
What Are The Seller’s Responsibilities?
The seller’s responsibilities are similar to those in any real estate transaction. Examples are:
Ø Provide the auction company with title information
Ø Provide the auction company with property descriptions
Ø Provide the auction company with appraisals, surveys, etc.
Ø Provide details about existing mortgages and liens
Ø Provide marketing expenses
Ø Provide information about previous attempts of marketing
Ø Make disclosure of known defects
Ø Provide closing assistance
Ø Be realistic about the value of the property
How Does the Seller Know What Market to Sell In?
Sellers really need to be aware of current market conditions. And who better to advise than the professional auctioneer? Sellers can rely on the auctioneer they choose not only to advise on market conditions, but also preferred markets in which to sell. Interestingly, auctions work in most markets.
Slow markets – auctions may create the special focus your property needs
Hot markets – auctions can prevent you from under selling in hot markets
Changing markets – new developments, shifts in the economy, and more
Is a Sale Mandatory even with a Low Price?
A number of my clients have expressed concern about property sold at auction and mandatory sale, even if they are offered a low price. I explain that that all depends upon the type of auction conducted. The auctioneer will advise the sellers on the type of auction best suited to their property.
Many auctions today are held as “Absolute Auctions”. In an Absolute Auction the seller must sell the property to the highest bidder. Consequently, some of the most successful auctions, from the perspective of a sure sale, are Absolute Auctions. Again, the auctioneer will advise the sellers whether or not and Absolute Auction is right for their property.
Another type of auction is one conducted with “Reserve”. An auction with Reserve gives the seller the opportunity of refusing the high bid. Many auctions are conducted with Reserve. And again, auctioneers can advise on the best type of auction for the seller.
What the Auction Company Does
Ø Determines the Objective of Sale
Ø Uses a due diligence checklist
Ø 1 or 2 staff members inspects property
Ø Meets with planning and development office, planning board, surveyors, attorneys
Ø Looks at the local community and neighborhood
Ø Looks at the retail, housing, attractions, and selling features
Ø Creates a unique marketing plan that may include local, regional, or national media, radio, brochures for direct mail, trade journals, signs, open houses or previews, internet placement and more
Ø Auctioneer may offer broker referrals
Ø Conducts the auction
Ø Assists in follow-up and closing transaction
How Long Does it Take to Prepare for an Auction?
Ø In most cases 4 to 8 weeks are needed
Ø Advertising normally begins 3 to 4 weeks prior to auction
Ø Telemarketing begins 1 to 2 weeks before sale
Ø Open house/property previews begin 1 to 2 weeks before sale date
When are Proceeds from the Sale Available to the Seller?
Ø Typically 2 to 4 weeks after sale
Ø The terms of sale will determine when proceeds are available
Ø Auctions often get the proceeds to sellers quicker than a negotiated deal.
Where is Information about Auctions Available in Local Areas?
Ø www.auctioneers.org for a list of upcoming events
Ø Local newspapers
Ø The Auctioneer’s Mailing List
(Thanks to Dale Fulk Rodgers Realty & Auction Company Mount Airy, North Carolina
For much of the above information, and for the way he conducts his business)
The 1031 Like Kind Exchange
Another way to liquidate an investment in a particular property is to transfer that investment. Details about the 1031 Like Kind Exchange are covered in Chapter Five of this book. I would like to point out that this method of liquidating property allows sellers and buyers to swap property, and that sounds like a handy solution at first glance. However, swapping one property for another, mine for yours, happens very rarely. And, usually there is boot (see “Definitions”) involved because it is hard to find two properties equal in value.
The sale of property is the best part for me. That is when all of the hard work and planning with the professionals pays off. Whether choosing the aforementioned or traditional marketing, once the property is identified, and all of the challenges are remedied, you may just find that, in the end, the old “For Sale” sign gets the job done best. In fact, REALTORS® do provide the majority of real estate sales or about 37% of all the sales. The internet is becoming a popular source for marketing real estate, with about 17% of the total sales. The old yard sign makes up 13% with friends/neighbors/relatives having a role in encouraging the sale and has about 11%. Home builders provide for around 7%. “Other” is 6.5%. Real Estate books and magazines as well as newspaper ads lag with 6% and 2%. And so it goes…
LAND INVESTMENT VS HOME INVESTMENTS
(THE DIFFERENCES AND WHAT TO ANTICIPATE)
“The earth abidith forever.” Ecclesiastes
It is true that all real estate is an investment. In fact, at a practical level, the terms “Real Estate” and “investment” are synonymous. Yes, some real estate investments do not make a profit, but it is very rare, and usually due to poor planning or untimely liquidation. If you don’t take into account the impact of Acts of God, airport runway expansions, miseries such as the Love Canal disaster, real estate generally appreciates. This holds true even when downturns in the economy create negative pressures on values.
I tell my clients that long term investment is the best strategy. Here, even downturns in the economy can present opportunity for the alert investor. Remember the “buy low and sell high” concept? Well, here is the chance to apply it!
It appears that when we have a downturn in the housing market, that we have stabilization in land values. In other words, the housing market is driven by economic conditions where land is driven by population growth. That is, before homes are built, development must be created which requires land. Inventoried land will be available to develop when the market turns.
Most REALTORS® who specialize in the sale of land smile knowingly when I exclaim,
“I HATE HOUSES!” If you have had any experience with residential sales, you will know what I mean. Residential sales are just plain too complicated and cumbersome! And, at the very last moment, transactions can fall apart with angry parties stomping out the door and a weary REALTOR® shaking his head in disbelief.
Think about it. Party A would like to buy party B’s house. Great news. That means that party B needs to find a home. Party B likes party C’s home. Party C needs to find a home and found party D’s, and so on. Well, by some miracle it all seems to “moving along”. when, OOPS…there’s a problem with the inspection. That’s something that you do not want to hear especially in a real estate transaction. Party B’s radon gas levels are just three points over the OK level, and the buyer balks rather than retest. Or party D forgot to disclose the old swimming pool that had been removed improperly. Instead, it had been filled with “collectables” (old refrigerators, old TV’s, the oil tank, etc.). OR, Party A’s wife came home last night and she had just lost her job. She makes a lot more than her husband. Now what do they (and the frustrated REALTOR®) do?
Have mercy! Have mercy! It’s just too much. “I HATE HOUSES!”
In our society, most of us have the good fortune to have a home. This is the place we go to sleep. It is, for the most part, a necessity as opposed to a luxury. So, in most cases, when one sells one’s home, one needs the equity from the sale of that home in order to have the down payment to replace it. So residential transactions have what I call “built-in-complications”.
The sale of Land on the other hand, is a whole different situation. That’s why you’ll hear me say “I LOVE LAND! YES I DO!” When a folks decide to sell their land, the proceeds usually are a found cash asset. Maybe it was family land that they inherited, or a bounty they bought with great expectations. It may have been a wise investment decision. But I know they have a home where they sleep, and the sale of their land won’t even cause a wrinkle on their pillow. I LOVE LAND.
As for the buyers of land, those buyers also have a home where they sleep. Buyers choose to invest in land, usually with saved money. They have dreams of building upon it someday. Or perhaps dividing it up and giving parts of it to one of their twelve children. Maybe they love to grow things. Maybe they dream of nurturing along grapes for an organic vineyard. Maybe they know all about medicinal herbs, and now just need the land to grow on. Maybe they will create an eco-village, or maybe a grandchild’s delight… an apple orchard in which to play. I really can get into the kinds of opportunities that just are intrinsic to Land and land sales.
There are a lot of reasons for investing in Land. And there is the added benefit of how everyone involved can find the creative potential. What’s more, the sale of land usually only involves two parties. We do not hear the residential “OOPS” so frequently when we are involved in land transactions.
Yes, I LOVE LAND. YES I DO.
So far I’ve spoken in broad terms, but let’s look closely now at the emotional aspects of buying or selling a home as opposed to buying or selling land. Both of these transactions have emotional elements or “investments”. Emotions from living in the home, with all of the memories and time shared can be very different from emotions of someone selling land. The home buyer is nervous there are all those “new sounds and smells” a total change of environment. REALTORS® are dealing with folks who are feeling vulnerable and wary. Most of you have been through the home buying and selling experience, so I shall not go on at length. I think you get my point.
How different is that residential sale from the land transaction. It is just different…a grand adventure. With a knowledgeable Land Pro at his or her side, investing in land is a wonderful experience. The land buyer is in for a treat. Most land buyers have already traveled down the financial road before spending much time in actually searching for that land dream. (Buyers that have pre-qualified their finances, whether buying a home or land are best prepared to make a decision.) Once a buyer is pre-qualified, REALTORS® who specialize in land sales are ready to let the creative genie out of the bottle.
As if magic, a knowledgeable real estate professional can help make dreams come true because he or she has been on a very sweet parcel of Land. That REALTOR® can lead buyers right to the perfect bounty of land they seek. When they arrive there, they will “know” it “belongs” to them because it just feels good to walk upon it, to see the view, and dance in the streams. There is nothing like owning land. It is in our blood.
It is so satisfying to be both a catalyst and consultant in a process that leads to ownership and stewardship of land. A straight forward process where the real estate professional is prepared, leads to a closing within four to six weeks. No radon test, lead based paint disclosures, termite inspections or black mold to mess with. And, for the most part, no emotional bumps, no sad faces, partings or disgruntled family members. Contracts complete, appraisal done, soil test (if necessary) and other due diligence satisfied, closing date set… what’s left but to enjoy the best investment anyone could every have. Yes, in the sale of land, the REALTOR® is the much appreciated purveyor of dreams coming true.
BOUNTY IN AND ON THE LAND
(THE NATURAL AMENITIES)
“You can change this land---this land. Land is both human and divine.” John Paul II
A friend of mine once told me that we are “the conscious voice of nature. “ I think she meant that we are responsible for stewardship of the Land and all upon it. As Chief Seattle said, “
How we involve ourselves in the Land impacts our lives and the lives of others into the future. And that is part of the value in Land and land ownership. Depending on your perspective, some land is more valuable than other land.
Location is just one aspect of land value. Other assets are intrinsic to the land itself. Prudent management of these assets will result in a sustainable economy of land and will benefit future generations. That’s why I’ve been known to advise my clients that as they review the bounty land offers, to keep in mind their grandkids just like my Grandfather and Dad did.
Land assets are plentiful. When land is populated with trees that are harvestable, those trees, a “crop” is called “Timber”. Timber can be an asset to buyers. In our area of North Carolina, because of the rich soils and climate, a wide variety of fast growing species are available for prudent harvest.
Often asked what the trees are worth on a particular tract of land, I always answer, “It depends”. Like so many things, the value of timber depends on many variables. One can ponder.
Making connections with a knowledgeable forester or knowing where to find one that can help you better understand and evaluate the value, or potential value of timber. When listing acreage, inquiring the value of land with a variety of trees and with timber cut, local appraisers can help you evaluate the value of the land and its assets? So my advice is to start talking to people who are in the know. Get a resource team together; the forester, the appraiser and anyone who has a special knowledge of land.
There are several methods timber experts use to provide REALTORS® timber values. The “timber cruse” method is probably the most accurate. The forester actually walks the property and evaluates the species of trees, the width of the trees and the number of eight foot cuts the trees will yield. With this knowledge, he will calculate the “board feet” yield, and equate that to the current timber market.
A “timber cruise” facilitates the land owner’s ability to offer the timber for sale to timber companies. Sale of timber rights might be by “sealed bid” or by auction. Then a “Timber Deed” should be drawn up. When the “Timber Deed”, generally written for a two year period, is recorded at the county court house, a certified check is released to the seller. And that two year period of time allows the timber buyer the flexibility in harvesting.
I like to advise my clients to harvest timber in a responsible way. I am an advocate of sustainable forestry management practices that ensure the health and growth of our forests for future generations. I like to think that my grandkids will be able to enjoy adventures in the forest as I have, and that our forests will be there when they grow up and have kids of their own.
Even companies that rely on forestland for their livelihood have begun to show an interest in assuring that forests remain healthy and productive: no forest, no industry, right? In fact, the Sustainable Forestry Initiative (SFI), a comprehensive program of forestry and conservation practices, is designed to ensure that future generations have abundant forests. This program encompasses nearly 94 million acres of forestland throughout North America.
Responsible harvesting of timber means working within guidelines that include reforesting harvested land promptly, providing for wildlife habitat, improving water quality and ecosystem diversity, and protecting forestland of special ecological significance.
Timber is a cash asset. I go into detail about the money-making aspects and secrets of success in real estate land investment through timber with students in my classes. For the purposes of this book, suffice it to say that when buying land in a timber growing area, you should learn as much as you can. Knowing that, if needed, part or all of the timber may be sold to create cash flow or handle emergency needs. Timber like any other crop, should be harvested responsibly.
Here’s a quick one for you to get useful information if you are interested in real estate investment and harvesting timber. The Sustainable Forestry Partnership formed by faculty at Auburn, Penn State, and Oregon State has developed forest tours in their respective states and have made the tours available on-line. You can view forests and learn quickly from your armchair at: http://www.cof.orst.edu/net/workshop/virtour3/WEBSITE/
I am sensitive to the environment and strongly recommend that careful planning with your local forester or the U.S. Forestry service be explored. Today there are twenty per cent more trees growing in the U.S. than there were when our country was founded. This is due to prudent forestry management.
Minerals and mineral rights can be important to land ownership or land purchase. Knowing about them will help you evaluate the value of the land. Mineral rights should be disclosed to you. There are however, situations where the seller and the buyer/investor are unaware of the existence of such bounty beneath the surface.
A REALTOR® associate told of a large land tract that he and several hunting buddies purchased several years ago. Due to its location and quality, they only had paid a small amount for the land. The REALTOR® knew of no minerals on the tract, but knew it was near a gypsum mining operation, and having a college buddy with a geology degree as a resource came in handy. He asked his friend to evaluate the tract. Was there marketable gypsum on it?
The report came back. And guess what? It showed over four million dollars, that’s $4,000,000 worth of marketable gypsum was on the property! Imagine that! Remember this incredible good luck story because you may be the next investor to have a “bird nest on the ground” and not be aware of it.
Sometimes I tell my land investment clients about the found four million. I remind them that if they find such bounty beneath the surface of their land, they have the right to extract them. They can receive payment, in the form of royalty, for the extraction of minerals.
There are several ways to define “mineral” including fossil fuels like oil, natural gas, or coal, or metal-based ores such as gold, copper or iron; and the non-metallic minerals, or mine able rocks like gypsum, salt, or limestone. Building stones are also included as “minerals” as well as sand and gravel, and peat or marl.
Mineral rights are bundled with property rights. These rights may be sold, transferred, or leased. Mineral rights may be utilized because they are under the ground. Other uses still exist above the surface such as commercial, residential, recreational, and agricultural uses. If like me, you like treasure hunting, investigate your local areas through the Geological Survey Department, or the Department of Environmental Quality.
“Water, water everywhere but not a drop to drink”. Would you ever have guessed that we would be buying small portions of bottled water for $1.00? Like the great forests, another of our most precious resources is in peril from misuse by human beings. I think it’s time that we stopped talking about sustainability and stewardship of the land and its resources and started doing something about the situation.
From both the aesthetic and practical perspective, flowing water adds value to property. A primary need of any rural property is to collect, store and distribute water. Meeting this need is an integral part of property development and influences the sustainability of all land use activity, whether that is watering animals, irrigating crops, or providing sight and sound pleasures.
Yes, water adds value. And properly developed water conservation systems can strongly contribute not only to that value, but to good land management where there are distinct benefits to the investor. Those benefits include: better animal health, less damage to vegetation and soil from roaming stock, more controlled grazing, increasing biodiversity, protection of the water itself, and the general aesthetic improvement.
We all know that view land with waterscapes comes at a premium because it is in limited supply. One of my Land 101 students from Wrightsville Beach, North Carolina told me that due to the high cost of ocean front and water front properties some people in that area now are marketing “marsh land” views at prices formerly reserved for oceanfront property.
In southwest North Carolina, several years ago, typical piedmont rolling hilled bottom land was very valuable to farmers, but not necessarily to a potential buyer looking for land and a building site. Several sod growers found the area and the price for bottom land increased exponentially. It is almost like “junk”. To some people, junk is worthless, but to others it’s not junk at all.
In some Western States, where water tends to be scarce, water rights strongly affect the value of land. As time marches on, we will see how the desire for water on land and acreage increasingly will contribute to its value. Naturally, land and water resource issues are an important part of the broader sustainability issue, and this means that land ownership and property rights in general, including water rights must be considered when it comes to valuation of land and water resources. The traditional view has been that land and water are there to produce commodities. Lately, however, I have noticed a greater recognition that there are limits to such production. In the mountains of Western North Carolina, for example, a shift from an emphasis on economic values to greater appreciation of aesthetic, environmental, and ecosystem values and the preservation of landscape is apparent.
Besides the practical and aesthetic value of water on land, soil types can add to overall value. Certain crops require certain types of soil. Farmers count on productivity based on the type of soil on their land. Some yields are assigned to a productivity index. Over time, soils and soil locations will have a direct affect on the value of land. So I advise my investors to be sure to investigate and learn more about the type of soils and the advantages or disadvantages soil my have on the value of land. If you are interested statistics or the methods of evaluation, refer to the U.S.D.A. Natural Resources Conservation Service.
(AUCTIONS, REAL ESTATE LISTINGS, COURT HOUSE, GOVERNMENT)
“A man is not a whole and complete man unless he owns a house and the ground it stands on” Walt Whitman
Investors, in their quest to invest in the best investment in the world, must first find the best information about availability. Maybe they will ride around an area and ask the locals. And if they are smart, they’ll ask those folks who the REALTORS® are who specialize in land and how to meet them.
REALTORS® who are “in the know,” know how to accumulate an insider’s knowledge of what’s happening in land sales. They are probably on the local auction company’s mailing list. This is a great way to find out about what’s out there. For sure they will be members of RLI. Regularly, they can be found, nose to the monitor, checking out various specialized web sites, especially RLI’S (www.rliland.net)
REALTORS®. Land specialists aren’t the only ones online. We see more and more people doing research online before even contacting a REALTOR®. They use the MLS (Multiple Listing Service) links to properties in locations of interest to them, and hope that the information is current and (hopefully) reliable.
Any one interested in investment in land can use web sites to find out general information or more in-depth facts about a particular listing without calling a real estate company. So why would anyone bother to contact a Land Professional REALTOR®? The answer: Land Professionals are experienced professionals who can save investors time and money. Not only do we know what’s current on the market, we also know the hidden gems, where they are or, at least, how to find them. We do the research. We check the “for sale by owner” section under “Land”. We actually read market niche magazines. And we don’t neglect the information we can get over a cup of coffee or down at the court house. We find out about public auctions sometimes almost as fast as the auctioneer. We scour the local papers; make visits to a bulletin board somewhere in the court house to see what’s posted there. And we keep this all in our heads and maybe in notes.
We’re a sturdy bunch. You’ll find us calling the court house to inquire when, where and what will be auctioned. We know when the city, state and federal government have land sales. Usually they contact a private auction company to provide the service. And, if you are looking, say outdoor adventure, we know of at least several magazines where we can research land for sale in the classified sections. Other specialized groups have the same.
Serious investors would be wise to find a REALTOR® who is a member of the REALTORS® Land Institute. We are the true and knowledgeable “Dirt” people in the real estate industry. Go to www.rliland.com to locate a Land Pro in your market area. We are happy to assist you.
(“THE HIGHEST AND BEST USE”)
“The earth is given as a common stock for man to labor and live on. If for the encouragement of industry we allow it to be appropriated, we must take care that other employment be provided to those excluded from the appropriation. If we do not, the fundamental right to labor the earth returns to the unemployment…It is not too soon to provide by every possible means that as few as possible shall be without a little portion of land. The small landholders are the most precious part of a state.” Thomas Jefferson to James Madison, 1785. ME 19:18, Papers
As REALTORS® you know that “Highest and Best Use” refers to the use of real property, among all legally permissible and practically probable uses, that will result in the highest value of that property.
One example: A ten acre tract of land with road frontage that lays well. The current market in a particular area recognizes a ten acre parcel to be worth $50,000.00. According to county subdivision ordinance, all lots must be no less than 43,560 square feet or one acre. The current market also says that a one acre lot is $15,000.00.
So, is the ten acre parcel worth $50,000.00 (as is) or is it worth $150,000.00 (10 x $15,000 = $150,000, the “Highest and Best Use”). Well, to answer that question, ask a few more questions. And think about the scenario a little bit.
Is there a need for ten more lots in that location? What is the “attrition rate” (number of sales in a specified period of time)? Who would find this property very, very attractive?
These are the basic steps, in simple form, that one would use to determine “Highest and Best Use” of the subject property. But keep in mind, the land value concept, “Less is more and more is less”. In other words, a one acre tract may be worth $15,000, where as a ten acres tract may be worth $5,000 per acre, and a 100 acre tract $2,800 per acre.
To make a wise assessment of “Highest and Best Use” as in any trade or business, certain tools are necessary. The main tool in evaluating and pricing land is a copy of the county “Subdivision ordinance”. Have you ever tried to play a game and did not know the rules? Well, the Subdivision ordinance is THE rule book for developing land. Next, an aerial/topography map is essential to this process. Every tract of land has, what I call, its’ own “finger print”. No two tracts are the same. With the topo map, you may discover the “finger print”…peaks and valleys, the types of timber, water locations, road frontage and more. With practice, you can take an aerial/topo map and, without ever seeing the property, determine its “Highest & Best Use”. But don’t let the chance to do a thorough walking evaluation slip by! There’s nothing like being on the land to determine the “lay of the land” and its’ features and “feel” the atmosphere there.
So get your tools from the county mapping office, or from a web site, and head on out. Make sure you get maps that not only have the subject property, but those that have several surrounding tracts. This will give a broader picture and the context from which to do a professional evaluation and interesting description for your clients.
Now, armed with the rules of the game and the visuals, the next step is to create workable sections of the map. I break up several maps, making a number of copies of the aerial/topo map, and then orienting them so that they are easily understood and presented with north at the top, and south at the bottom. Then I check out the scale.
Most maps have a printed scale on them. For example, a 200 scaled map means that each foot shown on the map is equal to 200 feet or 1’ = 200’. Taking a scaled ruler, use the “10” scale. 1/10 is equal to 20 feet. 10/10 is equal to 200 feet. Using 200’ x 200’ is O.K. for this purpose. In reality, an acre is about 208.71 feet square. But for break-up evaluation, this method is easier.
Most of the time, I use a line footage from the subject tract or other tracts located on the aerial/topo map. All tracts, large or small have the dimensions in feet. I look for boundary lines of 100’ or 200’, or anything that is a good even scale. Then, on an index card (or just a blank piece of paper) I make “tick” marks and create my own scaled ruler. Next, I use a pencil to draw on the map the tracts on the map. If doing internal lots, I make sure to draw in the roads. I use 50 feet as my standard. It is easier. Note: Most counties want 60 feet. That information may be found in the ordinance information. Experience helps, but common sense prevails. Look at other break-ups on the map to get a good perspective when you’re doing this project.
Once I have the tracts drawn on the map, it is time to start scaling them out to determine the approximate sizes of the tracts. Use the scaled ruler, or make my own. Measure each line, and, on the map, indicate the amount of feet. Note: Most tracts east of the Mississippi River are irregular, not rectangles or squares. And doing the pencil drawing of the property does not require perfectly squared tracts.
So, when determining the lot size or acreage, you may have uneven dimensions in your break-up. Example: a lot 250x300x200x400, what is the square footage and acreage? Take the 250+200= 450 divided by 2= 225. Then add 300+400 divided by= 350. Multiply the 225x350=78,750 square feet then divide by 43,560 square feet (one acre) and the lot size is 1.807 acre.
A rectangle shape is easy. Area = Base x Height. 200 feet x 100 feet = 20,000 feet divided by 43,560 square feet = .459 acres.
A square is also easy. Area = Base x Height. 100 feet x 100 feet = 10,000 feet divided by 43,560 square feet = .2295 acres.
Parallelogram is a four-sided figure with no right angles and with opposite sides that are parallel to each other and equal in length. Area = Base x Height. The critical thing to remember about determining the area of a parallelogram is that one must determine the HEIGHT before applying the formula. You can not use the length of the sides when applying the formula or just make two angles.
Area = 200 feet x 100 feet or 20,000 square feet divided by 43,560 square feet = .459 acres.
Triangle is a three-sided figure with three interior angles. If one of the three angles is a right angle, it is a “right triangle”.
Area + base x height divided by 2 or Area = ½ base x height. Area = 1000 feet x 600 feet divided by 2. Area = 60,000 divided by 2. Area = 30,000 square feet divided by 43,560 square feet = .688 acres.
So that’s a little practical exercise. How did you like it?
Now let’s say you really liked this exercise, and want to get deeper into this, maybe even do a whole subdivision. Then just remember, that the subdivision ordinance also will have road width dimensions, set backs, and a lot of information necessary for a subdivision approval. When you get to the stage of actually doing the ground work, call in one of your surveyor pals. All you are doing in the first process is looking at all of the possibilities of breaking up the property. But for this next step, I usually sit down and fax my ideas to one my surveyors for an opinion.
Certified land surveyors can help you determine the “Highest and Best Use” of the property. Their experience equals good advice for you. Of course, if your clients decide to proceed with development, they will be the lead connection. They will coordinate with the county planning board, county commissioners, environmental health department, and any other organization involved.
Part of the evaluation of “Highest and Best Use” is determining market needs. Would this property best be used in ten acre or larger tracts? Or maybe it should be broken into one acre subdivision lots or even a small strip or office complex. Again, determining the market needs will direct you to the “Highest and Best Use” of the property. Location, location, location is always the key.
Be sure to discover what the average sales price has been for lots similar to those you are evaluating. If you are doing larger tracts of ten or more acres, you will want to know the current sales price to the subject property too. I like to look at properties of plus five acres, and minus five acres. Note: The sell-cycle on larger tracts is longer than on smaller tracts, so comparable sales may be harder to find.
As a REALTOR®, with the convenience of MLS at hand, it is easy for me to pull comparables by market area. My clients really appreciate the work I can do for them, as described in this section. I like to have a very “deep” folder of information, including what I have previously detailed, and sales data found through the local Land Bank office. Most Land Bank offices have an in-house appraiser, and the local tax appraisal office is another source of excellent information as is the tax office. Auction companies keep records of live auction sales too, so keep them in mind when you are doing research for yourself or your clients.
Here is an example of a project I did several years ago.
We had three contiguous tracts consisting of (per tax cards) 56 acres, 39 acres, and 40.68 acres. (Buyer purchased several years earlier and bought the property by deed). Last survey was in 1938. Current tax cards indicate one acreage, but the tax map shows another. (You may run into this too, but for “Highest and Best Use” analysis, the closest “horseshoe” method is O.K.)
Tract 56 Acres+/- tax value $112,858
Tract 39 Acres+/- tax value $ 60,934
Tract 40 Acres+/- tax value $ 53,428
Total Acres: 135.68+/- Total Tax Value $227,220 or $1,674.68
Current market value if sold as one 135.68+/- tract is approximately $2,600 per acre or $352,768. This value is based upon sales of current MLS listings, tax appraisal values and auction sales for the past twelve months.
Selling each tract as-is a separate, 39 acre+/- tract @ $3,800 per acre $148,200. The 40.68 acre+/- tract @ $3,800 per acre $154,584. The 56 Acre+/- tract @$3,000 per acre $168,000. Combined anticipated yield $70,784 or $3,469.81.
When evaluating the property, the value of an existing singlewide trailer on the property, and various outbuildings and fencing was not considered. However, strong consideration was paid for the quality of the land, large pasture areas, the topography, extensive road frontage and location.
The “Highest and Best Use” of this property would be to subdivide it into small rural residential tracts. Each tract could be divided into a minimum of one acre tracts (county ordinance requires a minimum of 30,000 square feet or .689 acres. However, I strongly recommended that division be into at least one acre lots. It is important to take into account lack of water and sewer availability and the area needed for a septic tank and its repair area. This could be as large as 19 acres, based upon topography and two intersection power line easements. (See map break up recommendation.) This is only one way to maximize the land usage and can be the basis for further consideration.
Highest and Best Use:
8 one acre tracts x $14,000 = $112,000 or $12,000 = $96,000
24 – 1.1 to 2 acre tracts x $16,000 = $384,000 or $16,000 = $384,000 (same as one acre due to no significant value change in comparable in this acreage range).
5 – 2 to 3 acre tracts $25,000 = $129,325 or $22,000 = $110,000
5 – 3 to 4 acre tracts $27,500 = $137,507 or $25,000 = $125,000
1 – 4 to 5 acre tract $28,500 = $ 28,500 or $28,000 = $ 28,000
4 – 5 to 6 acre tracts $32,000 = $128,000 or $30,000 = $120,000
1 – 6 to 7 acre tract $35,000 = $ 35,000 or $32,500 = $ 32,500
1 – 19.4 acre tract $62,500 = $ 62,500 or $62,500 = $ 62,500
Highest anticipated gross yield $1,016,832.00. More conservative gross yield $958,000. Development cost such as paved roads, soil test, survey, and all other related cost in developing this property must be calculated and subtracted from the above. Time value of money, capital gains and basis also must be calculated to complete your final decision.
Other factors involved in all three analyses are the “attrition rate” or simply put, “How long will it take to sell all of this land?” As money depreciates (time value of money), it may be more advantageous to sell as one large tract or three acreage tracts. On the other hand, you may look at this as a long term investment and are willing to take several years to liquidate.
Tax value: $227,220
One tract sale: $352,768
Three tract sale: $470,784
Highest and best use: $1,101,683 (less development cost)
This analysis is the opinion of the writer and not the opinion of the company.
The information above will help you be a better REALTOR® consultant for your investor clients. If you currently own land, it will help you better understand the true value of the wonderful land investment you have made.
WORKING WITH A REAL ESTATE LAND BROKER
(WHY AND WHAT DO THEY KNOW THAT RESIDENTIAL BROKERS DON’T AND WHAT TO EXPECT)
“All Realtors® are educated and trained to sell houses, but not all Realtors® are educated and trained to sell Land and Farms.”™ Lou Jewell ALC
Land brokerage is a totally different business than is the residential brokerage business.
As an example, look at the process in residential sales. A person comes to me and wants to buy a house. They explain that they have to sell their home before they can buy another home, which would put them in a contingency position on any offer. We ride around and look at several homes they have selected and find one and they make an offer on it. It is negotiated and put under contract.
The person that accepted the offer now needs to find another home, but can’t purchase until the sale of their home. We put the first buyer’s home on the market. A couple weeks later, we get an offer and it is accepted. Now that seller needs to find a home. Point being, this can get very complicated and if one thing goes wrong, it’s a “house of cards”.
Homes require all kinds of disclosures and inspections. If any of these processes is not satisfactory to the buyer or seller, then deal just falls apart. Then you start calling up and down the chain saying sorry it did not work out. There are too many people involved in a home transaction and a lot can go wrong.
Residential brokers are trained to handle all the disappointments that arise in homes sales. I have often said that REALTORS® are professional problem solvers. From the time a contract is consummated until closing, it seems that the REALTORS® are holding everyones’ hands. I have sold the same property five times to the same people before it closed, just satisfying unexpected problems that arise.
Land is a whole different scenario. Usually the sale of land just involves one buyer and one seller. When a person sells land, generally it is for three reasons: One, they have inherited it from the family. Two, they bought it with great future plans to do all sorts of things. And three, they are, or have relocated, to another area or region, and do not expect to ever use the property.
When land is sold, it for the most part is “found money”. Remember, land is the best investment of all. At some point it will be sold and when it is, it will usually be worth a lot more than when it was acquired. A person selling land usually has a home and a bed to sleep in and is motivated one way. While folks selling the family home need to find another home, and a bed to sleep in too, just is motivated in another way.
The buyer of land is different than the buyer looking for a home. Land buyers usually have incredible dreams about what they can do with land. I can build a pond. I can have horses and cows and chickens and goats. I can build my dream home. I can leave this to my kids. I can grow grapes and make wine. A land buyer is a dreamer.
Yes, land brokerage sure is very different from residential brokerage.
Land brokers know the laws, the soils, the market, and other assets that may affect the value or usage of land. Land brokers have the experience to provide their clients with the “Highest and Best Use”, the “Time Value of Money” and other pertinent information. And everything comes together almost like clockwork.
Real property is the largest investment made during one’s lifetime. It can generate the largest check you or your client will ever hold in your hand, too. Why do buyers and sellers engage real estate agents that do not have the expertise to market or advise them in one of the largest financial transactions of their lives? You don’t go to the dentist’s office for brain surgery even though the dentist and the brain surgeon are both “doctors”. Then why do clients go to residential brokers to buy land?
If looking for land, there’s no one better qualified than a member of the REALTORS® Land Institute. This sixty year old professional organization provides education to REALTORS® that broker land. RLI provides nine, two and three day professional land courses and awards the prestigious “Accredited Land Consultant” designation for those who meet stringent requirements. When I received mine, I was one of 322 active ALC’s in the United States. The cherished certificate I received in number 1,079 in this sixty year old organization. We are truly lovers of “dirt”. Go to www.rliland.com to learn more about RLI and find a “land pro” in your market.
HOW TO PREPARE TO BUY OR SELL LAND
(A STEP-BY-STEP GUIDE)
“A man complained that on his way home to dinner he every day had to pass through that long field of his neighbor. He was advised to buy it, and so it would never seem so long again”. Ralph Waldo Emerson
Advice I give my REALTOR® students: Tell your clients the difference between a residential broker and a land broker. When they decide to purchase land, the first order of business for them is to seek and find a land professional. Remember, the purchase of real estate will probably be the largest investment they will ever make, so it’s wise to take the time to select a land professional. Only then are they ready to decide the type of land, the area, the amount, and what their dream looks like and paint that picture for their REALTOR®.
Once clients have decided what, where and how much land they want and are ready, willing and financially prepared, they would do well to visit the area or areas that attract them. I tell my clients to interview several REALTORS® in the market area. They need to find out about the REALTOR’S® experience.
As a REALTOR® you should review land sales and land listing prices. Provide in-depth information. This will help clients confirm the amount of investment money they have targeted for a certain amount of land.
Assist your clients as they select one or more properties. Walk every inch of it with them if possible. Tell them what you already know, that land will surprise you. Sometimes it will not have “curb appeal”, but once you get on it, you see its unique features. When I walk the land, I can feel it. It might feel O.K., or maybe have no feeling. But when I find the special one, my heart throbs. So tell your clients “You will know it when you see it”.
From the “offer to purchase” to the closing, we land professionals, help dreams come true.
When clients decide to sell land, it is wise to seek that professional expertise, too. As discussed, marketing land and understanding the nuances will make a direct difference in outcome. Our job as Land Specialists is to preview the property and prepare a “Highest and Best Use” analysis. This gives the clients valuable information and sets reasonable expectations for the sale of the property. I advise sellers to meet with their CPA, determine the tax consequences that affect their bottom line. This may also determine how they want to sell the property, be that cash at closing or owner financing.
REALTOR® Land Specialists are skilled in determining a listing price, how and who to market to and other issues affecting the sale of the property.
Very few states require a “Property Disclosure” form for land. This is strongly recommended when selling land. When transferring liability, this will put your client in a stronger position if something comes up on the land they have sold. This is the one we use.
LAND PROPERTY DISCLOSURE
Does the property lack frontage on a public road? Yes?__ No__Don’t Know__
Are there any violations of any codes or ordinances on the property?
Are there any encroachments, easements, or rights of way affecting the property?
Are there any pending lawsuits, foreclosures, divorce actions, tax liens, utility, mechanics or materialmans liens, or special assessments that could affect title to the property?
Is the property presently enrolled in any government administered program such as but not limited to soil or water conservation, game land, or forestry stewardship? If yes, please explain.
Are there any gravesites on the property?
Has the property ever been used for any illegal activities such as but not limited to alcohol production, marijuana cultivation or sale of any controlled substance?
Are you aware of any forfeiture of timber, water, soil, development, or mineral rights to the property?
Is the property located within federal or state designated disaster evacuation zone?
Do you have a survey of the property?
If known, please indicate the number of acres you are selling._______
Are there any environmental nuisances affecting the property such as but not limited to smoke, odor, or noise?
Has the property ever been used as a landfill either private or public?
Are there any underground storage tanks on the property?
Has the property ever been used for commercial or industrial purposes?
Is any part of the property located within a critical watershed area?
Has any part of the property been designated as wetland?
Are you aware of any soil or groundwater contamination on the property?
Does the property presently have or ever been used for storage of abandoned or junk motor vehicles or components, powered or non-powered farm, commercial, or industrial equipment or components of such equipment?
Has the property ever been the subject of any federal or state sponsored environmental clean-up?
Are you aware of any sinkholes, faults, or other unusual conditions on the property?
Are there any buried power lines, water, sewer, or gas pipelines on the property?
Is any part of the property in a federally designated flood zone?
Are you aware of any abnormal erosion, soil or drainage conditions on the property?
Has the property ever been used for any type of mining?
Are you aware of any open or abandoned wells, mines, caves, or pits on the property?
Has the property ever been diagnosed as having or been treated for insect infestation or disease of any type?
Does the property have access to public Water? Sewer?
Has the property had timber harvested within the past 25 years? If yes, was the harvest monitored by a Registered Forester? Was the timber clear cut? Was the timber replanted? If yes, when and what species?
(Property disclosure furnished by Rick Price, Weichert Realty, Concord, North Carolina)
These questions are also important to your clients buying or selling land. It can save everyone a lot of headache. Note: Some states have Land Disclosure forms. North Carolina is one of them. Please encourage your state to provide one.
I wanted you to have a copy of my “Survival Kit” that I wrote as a hand-out for my Land 101 Class students as a free bonus to you the reader.
REALTORS®’ LAND BROKERAGE
Prepared for Land 101 Participants
©by Lou Jewell, ALC
REALTOR® and Lover of the LAND
Land and decisions about its ownership or stewardship of it, have been a defining factor in the history of the United States. ..The promise of having a stake in the land brought so many to our shores. ..LAND, that one asset, highly diverse, uniquely fixed, and limited in supply….
“Land is the only thing in the world that amounts to anything, for ‘tis the only thing that lasts, and don’t you be forgetting it! ‘tis the only thing worth working for, worth fighting for, - worth dying for…” Gerald O’Hara to Katie Scarlet GONE WITH THE WIND
RELATIONSHIPS ARE KEY
As you establish yourself as a Land Broker, one of a select group of people who are willing to brave the elements and ford the streams, my best advice to you centers around RELATIONSHIPS. These important associations will help you today and over the years. The depth they will provide to your practice will help you establish yourself as a Land Expert. Build this team and be loyal to them, and demand loyalty back! If you cannot call them when it may be inconvenient to them from time to time, find someone else to work with. As with most businesses, team effort is essential.
There follows a list of members you would do well to identify for your team. Try to find three folks you can work with in each category, but be sure to find at least one. These contacts will help you to know your market and the players in it.
LAND APPRAISER. Identify and meet with and interview this important member of your team. Talk with him or her about the average sales prices of lots and acreages. Keep track of this as you continue to keep in touch with this individual and chart it. This information is all-important as you evaluate land in your market. This information can support that you obtain from your local MLS system (if you have one). Be sure to use the MLS to chart the land currently on the market, too.
LAND BANK. The land bank is very important in the land business. Here’s why: Down payments and interest rates. Any property over five (5) acres (with or without a home on it) is considered “non-conforming”. Conventional lending services will make a loan on vacant land, however they want 20 to 50% down. On the other hand, the Land Bank asks 15% down on a 20-year program. (This program is based upon demographics, so your market area may not apply.) Note: Most Land Banks have in-house Appraisers.
ATTORNEY. Who can do business without a good attorney these days? Interview as many as you can find who specialize in land transactions. Talk with them about land, what they think about it, what brought them to specialize in land transactions, and how available they can be for you and your clients.
Try to identify at least three (3) attorneys you can work with and recommend to your clients. Remember, a land attorney should be very knowledgeable in subdivision laws, easements, timber contracts, mineral rights, extensive title searches, and land financing. There are definite nuances in the land business and your attorney needs to know about them and be available for consultation, even at night.
CPA/ TAX ACCOUNTANT/FINANCIAL PLANNER. There may be tax consequences in all land contracts. These professionals can help you identify them and can be a valuable resource to you and your clients especially if they specialize in 1031 Like-Kind Exchange work. They can explain how to figure the “tax basis” in your transactions.
SURVEYOR. A surveyor is a big help in determining the “highest and best use” of a property. Do the same thing with surveyors as you did with other team members. Take the time to interview and select as those you enjoy working with and can recommend to your clients.
Be sure the surveyor is up-to-date on zoning and subdivision laws in your market area. Find at least one who not only is available, but will work with you. That is important. I call my surveyor at night if I need to.
ENVIRONMENTAL PROFESSIONALS. Take the time to get to know your environmental health department professionals. Be sure to meet and spend time with the Health Department Director and Staff. At a minimum, learn from them: 1) How to set up a septic system; 2) How to fill out septic applications;
3) How to understand and fill out well permits.
In addition, 1) learn how to do your own soil analysis, 2) know how to get a water sample if a property has existing well or wells, and 3) get copies of soil maps and system application forms so you will have them handy when needed. In a rural land transaction, the septic permit is all you need to close. Remember, the septic permit may take 2 to 4 (or sometimes more) weeks to obtain, so be sure to start the process as soon as you are under contract.
SOIL SCIENTIST. Soil scientists are an invaluable asset to your team because they can approve sites that a Health Department cannot. They can suggest alternative systems (probably considerably more expensive) and even override a Health Department decision. Most counties do NOT have a soil scientist on staff, so you will need to do some detective work to find and establish a relationship with at least one. A soil scientist can teach you how to evaluate soil, a lesson well worth learning.
SEPTIC SYSTEM INSTALLER. In the land business, where septic systems are common, what would your team be without at least one reliable septic system installer on board? Identify and interview several and select those you can work with and refer to clients. From your contacts, learn the different types of systems, their costs and how they are laid out. Go to an installation site and observe for yourself first-hand how the system is installed. Support your own research with a collection of information and brochures from various manufacturers whom your installer can recommend.
WELL DRILLER/CONTRACTOR. A poorly built or maintained well can allow pollutants to enter water directly. The closer the well is to sources of pollution, the more likely the well will become polluted. For instance, if the well casing is cracked and pesticides that are being mixed near the well are spilled, the pesticides can easily leak into the well and pollute your drinking water, so it is essential to take the time to get to know a certified well-driller in your area. A good place to start to look for a well driller is your State Division of Water Quality. Once you locate reliable resources, and identify those you will want to work with, find out about their pricing structure (most charge by the foot) and get basic knowledge like the typical depth of a well in your area, and now to chlorinate a well.
Your regional DENR Groundwater Section office, county health department or local Cooperative Extension Center can be a valuable source of information on the following topics: New well or spring construction and site selection, well inspection and maintenance, Certified well drillers, Unused well abandonment, Construction records for existing wells ,Well water testing including— - Advice on appropriate tests to run, - List of certified testing laboratories, - Assistance interpreting test results, - Health risks. Your local Cooperative Extension Center can also provide information on: Backflow prevention, Water pollution and health risks, Water treatment devices, Groundwater.
COUNTY/CITY PLANNING BOARDS. Attend meetings of your local board. You will gain invaluable knowledge and insight which you can share with your clients. Get current copies of zoning laws, subdivision laws, zoning maps, flood plain maps, and other information that will be of help to you. Know of plans for the future including zoning changes and annexations, as this will help you anticipate the market. Learn how to establish a new street name and address.
MAPPING STAFF. Get to know the mapping staff in your county. They can help you to identify property, property owners, provide tax maps, topographical (topo) maps, and aerials of property. (Most counties now have GIS systems.) The mapping staff can teach you how to use these tools if you take the time to establish a relationship with them.
REGISTRAR OF DEEDS STAFF. Get to know the folks at the Registrar of Deeds Office. They will help you do your own title search and do the research to discover anything that may affect the title or value of the property including: any type of easement, encumbrances, mineral rights, timber rights, and so forth. Remember: ALWAYS get a copy of the Deed or deeds involved as you do your research. Do not rely on the attorney to do this for you. You are the expert and responsible.
TAX ASSESSMENT OFFICER. Take time to go to meet the tax assessment officer. Such individuals are helpful in understanding what has sold and trends in sales beyond MLS date. My agent furnishes me leads from time to time. This member of your team can be an excellent resource and most Realtors do not use them, so you can stand apart if you do.
TIMBER EXPERT. Professional Forestry services can help you as you identify the “highest and best use of the land” and a timber expert is an excellent addition to your team. That person can help you remember which tree is which, learn how to identify prized trees, learn how to “cruise” timber, provide a “certified cruise” and basically learn how the timber market works. You need to know about or how to figure board feet, how a timber contract works, and how to auction timber. TIMBER IS CASH. Your client actually can buy land with a timber contract, cut the timber, and still own the land with no out-of-pocket money. Being able to evaluate timber will help you price land.
ROAD BUILDER. The construction business has become a more complicated one as environmental and safety rules proliferate and methods and equipment become more sophisticated. The increased complexity of the field makes planning jobs even tougher than before Road construction, grading, concrete work, retaining wall construction and taking preventative measures, which are cheaper than curative ones, can reduce the risks of landslides and increased soil and water erosion. Your road builder can tell you about the importance of aligning a road along a ridge, especially with a south-west aspect, and how it helps to avoid water drainage problems, avoids exposure to excess moisture and frost, and uses sunlight to keep roads dry. Ask him or her about phased construction, such as gradually increasing the width of the track, avoids having to manage large amounts of excavated material and allows for the natural compaction of earthwork by rain. Road building is a complicated effort and you will want to add a seasoned road builder (or more) to your team. They can let you know the cost of putting in basic access roads to state-specified built roads. This will also help you on a break-up evaluation.
CORPS OF ENGINEERS/SOIL & WATER/ENVIRONMENTAL PROTECTION AGENCIES. All these government agencies are resources for you and may well be involved in any land development project in which you are involved. Get to know them and what services they provide.
LAND CONSERVATORY. Identify the local Land Conservatory decision-makers. They may be aware of purchase programs and incentives that may purchase your listing or a part of it. Tax benefits at the Federal and State level may aid in your sale.
UTILITIES PROVIDERS. Contact the utilities providers in your area including telephone, power and cable. Know who they are, what their service area is, how they work in terms of applications and so forth, what their charges are (if any) for new service, or moving a pole or poles and possibly create a hand-out with this information you can supply to your clients.
LAND BROKERAGE TOOL KIT
These are must items to help you become a LAND EXPERT if you use them.
Surveyor’s flagging tape
4’ surveyor’s stakes
Small hand sledgehammer
A handful of 10-penny nail (Who is holding the dumb in of the tape?)
Really good walking/hiking shoes
Beverage container you can wear
Digital camera w/ extra disc
Topographical maps/ aerial maps of subject and adjoining properties
Septic/well permits application forms
You may want to add to this list.
You also may want to contact Ted Turner. He is the true lover of land. He now is the largest private owner of land in the United States. He owns over 1,800,000 acres of land. Does he know something we should know?
Now you are ready. Happy land brokerage and good luck.
© Lou Jewell, Accredited Land Consultant 2004
Member of The Realtors Land Institute
www.rliland.com 1 800 441 5263
Dan River Real Estate, Inc.
502 Key Street
Pilot Mountain, NC 27041
1 888 339 8660
FARM CREDIT SERVICES (FCS) www.farmcredit.com They are a network of independently owned and operated credit and financial services institutions that serve farmers, ranchers, agribusinesses of every size and income range across the country as well as those that desire country living.
REALTORS® Land Institute www.rliland.com The official Web site for the REALTORS® Land Institute. Find out more about this unique organization. Also locate a RLI member in your market area. Also go to www.rliland.net for over one billion dollars worth of land for sale.
REALTOR®.com www.realtor.com Over one million strong, The National Association of REALTORS® web site for the whole US. Note: on the home page you will not find the word “Land”. Look under “Find a Home” “Search other options”. You will find land listing there.
CCIM Institute www.ccim.com The CCIM Institute confers the CCIM designation. Associated with the National Association of REALTORS®, this unique group of REALTORS® share land interest with RLI from the commercial side of land.
CoreNet Global www.corenetgloba..org A corporate real estate network focusing as the primary source of global, regional and local networking in the field of corporate real estate.
LoopNet www.loopnet.com is the largest and most extensive commercial land-listing database on the Internet.
American Society of Farm Managers and Rural Appraisers www.agri-association.org/asfmra/
Appraisal Institute www.realworks/com/ai
Agriculture Internet Users Association www.aiua.org
The Complete Forestry Homepage http://forestry.miningco.com/
Successful Farming On-line www.agriculture.com/
Information on agriculture news, weather and markets
United States Department of Agriculture (USDA) www.usda.gov
USDA, Farm Service Agency www.fsa.usda.gov
USDA, Forestry Service http://svinet2.fs/fed.us
Bureau of Land management (BLM) www.blm.gov/nhp/index.htm
Recreation on Public Lands www.recreation.gov/
Environmental Systems Research Institution www.esri.com
GIS WWW Resource List www.geo.ed.ac.uk/home/giswww.html
The GIS Portal www.gisdatadepot.com
Guide to GIS Resources on the Internet http://sunsite.berkley.edu/GIS/gisnet.html
National Atlas of the United States www.atlas.usgs.gov
United States Geological Survey (USGS) www.usgs.gov
Absolute GPS www.gpscity.com
Magellan GPS www.magellangps.com
General information on GPS
GPS World On-Line www.gpsworld.com/gpsworld/
U.S. Army Corps of Engineers (USACE) www.usace.army.mil/
Maps of U.S. Waterways and Ports http://www.hq.isace.army.mil/cepa/Links.html
Bureau of Labor Statistics www.stats.bls.gov/blshome.html
EnviroWindows http://ewindows.eu.org/Agriculture/Agreports Environmental Information of Business and Local Authorities. Reports on Agriculture & Environmental issues.
National Library for the Environment www.ncseon-line.org/NLE/CRS/
Congressional Research Services Reports.
The Nature Conservancy http://nature.org TNC works with communities, businesses and people to protect more that 116 million acres around the world.
State Environmental Links www.epa.gov/epapages/statelocal/envrolst.htm
Find local government environmental offices.
U.S. Environmental Protection Agency www.epa.gov
U.S. Fish & Wildlife Service www.fws.gov/
USDA Natural Resources Conservation Service (NRCS) www.nrcs.usda.gov
U.S. Army’s Ground Water And Solid Waste Program http://chppm-www.apgea.army.mil/gwswp/
Code of Federal Regulations (CFR) www.access.gpo.gov/nara/cfr/index.html
RL30126: Federal land Ownership http://www.nwri.org/wildlands/federal_land_ownership.htm This is the Constitutional Authority; the History of Acquisition
Land and Freedom Free resources for high school teachers “Land and Freedom Lessons” http://landandfreedom.org/
janeAnne~ Narrin Mountain Homes and Land Legacies www.janeAnne.com
Mountain Homes, Land Legacies & Commercial Properties in the
Spirit of the Appalachians
LOU JEWELL ALC
Specializing in Land and Farms
Serving Davie, Rowan, Surry, Stokes, Wilkes & Yadkin Counties
Stated earlier, all Realtors® are trained and educated to sell homes, but not all Realtors® are trained and educated to sell land. There are a lot of variables when buying, selling or investing in land as you have read. Laws change, financing changes and market conditions change too. As I personally grow in the knowledge and experience of Land, I will continually update this book with any new ideas or changes in law and financing or any other issue affecting Land.
For example, the new Federal Supreme Court ruling on Eminent Domain will have major affects on land and land usage. New and changing environmental impact laws may change the way of doing business. More issues will surround Land as time goes on and populations grow, and it is my pledge to inform you as these issues arrive.
Please give me your feedback, ideas, web sites of interest, or subjects not covered or not fully covered to your satisfaction. Your input will make this the best all time book on Land ever. I truly appreciate your interest and hope you gleamed an idea or two. I look forward to hearing from you often.
Lou Jewell ALC
(Page #’s will be added later)
Acts Of God
Average Sales Price
Certified Land Surveyors
Conservation Land Trust
Commercial Use Of land
Department Of Environmental Quality
Easement By Condemnation
Easement By Gross
Easement By Prescription
Field Guide To 1031 Investments
First Right Of Refusal
Four Basic Reasons
Geological Survey Department
Highest And Best Use
IRS Code 1031
Land And Water Resource Issues
Law Of Supply And Demand
MLS (Mutable Listing Service)
Mineral And Mineral Rights
Purchase Money Contract
Realtors® Are Professionals
Realtors® Land Institute
Self Directed IRA
Surry County, North Carolina
Sustainable Forestry Initiative
U.S.D.A. Natural Resource Conservation Service
Water Conservation Systems
1031 Like Kind Exchange