How To Make Money With Vacant Land Part 2 â€“ Infill Land Leases Edit
In this coveted lands post, I'm going to cover how to make money with vacant land when your land is an infill land. In the previous post, I was talking in general about typically larger parcels where you can lease the property for livestock agriculture, hunting residential situations also come into play and infill lots have kind of a different grouping of potential resource.
So first when you're dealing with infill land you have to figure out the zoning and if you can change zoning to commercial you typically get more money for the property. It's usually possible if your property is located on a very busy road or a highway then you get zoned as commercial or it might already be zoned as commercial and it's not uncommon for commercial properties to do what is called the land lease. With a land lease, what happens is the landowner gives a super long-term lease to a developer or someone to decide on that land to use, often for commercial purposes. It could also be done for residential purposes but that's less common. When you're dealing with these situations you'll typically get a pretty low yield on your value. Your land will typically be somewhere in the 1 to 5 percent range. And again, this varies quite a bit by location, the deal you get purchasing your land and just what's going on generally in the economy. But sometimes these land leases can be a win-win for the landowner and the developer or the person or entity that wants to build on the land.
The reason for that is, the landowner gets to keep that land and he gets to stay in their family or you know in their entirety and they don't have to deal with the pain of selling it in the taxes associated with that. And the reporting associated with that. Also for the person who is building on the property or leasing the property, they don't have to
worry about a large down payment. And for some builders that freeze their cash up to build the structure that they're going to put on the land. So as the person who owns the land that's leasing it. You obviously want to make sure there are certain covenants in place that ensure that if the builder starts a project they finish it so you're not left with the half-finished project on your property. You want to make sure that your land is worth more after they're done. But generally speaking, it's great for both parties because a landowner gets someone who's going to invest in their property probably increase the value of the property in the area around that specific property. The person who is leasing the land doesn't have to lay out a ton of cash to get a hold of the land but they still get to build on it and they still get the right to use it for a long period of time. How long do these leases usually go. Well, it depends, on the short end, I've seen like 20-year leases but typically they're there much longer than that. So 50 years is not unusual or unheard of and that provides a nice stable recurring income stream to the landowner often and the leases the landowner will build then an increase in the least amount that matches inflation or some other gauge or maybe just you know it. It actually goes up 3 percent a year or and depends on the agreement that you negotiate but can be a great inflation hedge and a great way to earn income on land that otherwise would just be sitting idle now. Not only does it earn income in the current period but oftentimes it's beneficial from a long-term capital gains perspective. So if you want to leave a legacy asset for your family this is a good option because the person who builds on it is going to make that land more valuable. And it's also going to likely increase the amount of commercial and residential activity in that area. So it will help the nearby civilization expand outdoor your area where if you're in the middle of town it will make that area a little bit more valuable because you won't have any empty pocket sitting there. And then when the lease comes up for renewal depending how you write it chances are it'll be much more valuable than it is today. It's a great option. It solves a lot of problems for the parties involved and it's definitely something to consider if you have vacant land just sitting there. You might want to consider putting that land up release and a few other things you want to make sure that you think about ahead of time are whether you are willing to let a mortgage be senior to your land ownership position meaning the builder comes and they're going to say “Hey I also want to get a mortgage on the building I'm building.” Can I get that mortgage. So if I default the bank can claim the building and the land under it. Most banks are going to want that because it's harder for them if they have to foreclose on someone to sell land or to sell a building without the land. But it does happen. Banks will do mortgages and will finance construction projects where the land is senior and separate from the building project. So it's just something to consider. You're going to get a better a better price in terms of your lease rate. If you do allow the bank to be senior but you incur more risk by doing so and that risk is also somewhat out of your control because it depends on what the person who is leasing the property does whether or not that is going to end up being all or a foreclosure situation. So hopefully this is helpful covering the commercial leasing land lease situation. This also can apply to residential properties. It's less common in the residential space but it can be done. And I'll talk about a little bit more about that in another post.
How To Make Money with Vacant Land Series How To Make Money With Vacant Land Part 1 – Rural Leases How To Make Money With Vacant Land Part 2 – Infill Land Leases How to make money with vacant land Part 3 – Residential Rentals How to make money with vacant land Part 4 – Green Energy Part 5 – How To Make Money With Vacant Land – Easements Part 6 How to Make Money with Vacant land – Minerals Part 7 How to Make Money with Vacant Land – Plants
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