B10 August 2009 PERSONAL FINANCE: Yachting Capital
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Raw land could bring investment benefits with planning, luck Over the years many clients and friends have told me the one investment they understand is real estate. The reason for this is that land is tangible, something they can see as an investment. Land investment is a simple concept of supply and demand. Typically Yachting Capital you invest in Mark A. Cline a new area
that is “developing” or “growing” and you invest in an area where the infrastructure such as roads and water lines are already in place. A common development begins with a developer who owns vacant lots for you to buy. Most often they will build the house for you unless you are ambitious enough to build it yourself. Atlanta is a good example of a “growing” area. Atlanta’s real estate and population has been growing over the last couple of years in sharp contrast to conditions in South Florida. If you look at raw land, the full cycle of a piece of property starts from old
farm land that you can buy for next to nothing an acre. That same property is considered to be developed years later when you can get a mortgage and demand is created for occupancy. Most people are surprised to hear that the highest return on that piece of dirt is from when that old farm land is purchased to when it is sold to a real estate developer once the basic infrastructure has all been put in place. The inside trick to purchasing farm land is purchasing large tracks in a path of current growth. Take Atlanta, for example. If you were to look at it on a map, the city is generally round
in shape. There are a couple of small pockets of nicely developed areas to the northeast of Atlanta. If investors buy the land between that area and the city limits, it could really be a good investment. However, to make it work, you must understand how to plan out the exits off the interstate, have the connections to work with planning and zoning for the infrastructure, and sell all this as a packaged deal to developers. To get involved in this side of real estate, you typically have to seek out the companies that have the experience. Some will let private investors get involved and pool many investors together to develop a track of land. Most of these projects are typically done through institutional pension plans. Keep in mind that this type of investment is a hold-and-wait as there is no rental or dividend income. In other words, this is an illiquid investment. There is not a market for resale of your investment until the development is sold. This typically can take 3-5 years. The returns can be worth it if this fits your timeline and investment style. With good, solid companies, I have seen individual projects offer from 5 percent to 28 percent annual compounded rate of return. These types of investments also calculate with what’s called Simple Annualized Rate of Return, which comes out to between 8 percent and 37 percent. Make sure to ask which one you are quoted. This is a preservation of principal with a capital appreciation type of investment. This is an all cash type investment so there is not any type of capital call since there is no money that is leveraged. This means money is not borrowed on top of your investments which can make it a safer type of investment. The real estate market should be looked at as an asset class. Look for companies that have a long track record and carefully review their Private Placement Memorandum as this will give you all the details about the investment. Blend this investment with other investments to meet certain financial objectives. As with any investment, do your homework and ask questions. Then ask more questions. Information in this column is not intended to be specific advice for anyone. You should use the information to help you work with a professional regarding your specific financial objectives. Capt. Mark A. Cline is a chartered senior financial planner and mortgage broker. He is a partner in Capital Marine Alliance in Ft. Lauderdale. Comments on this column are welcome at +1-954-764-2929 or through www. capitalmarinealliance.net.