By and large, you want to make sure of the following.
The property is zoned properly for all anticipated uses. Never, never, never rely on a public official telling you that "rezoning will be a slam dunk." If the land is not currently zoned for use by the tenants you have in mind, condition closing on being able to obtain that rezoning or zoning variance.
The land is buildable, considering all setback and other requirements. A lot that is 50 feet wide by 50 feet deep, but with local laws prohibiting any buildings within 30 feet of the property line, is virtually un-buildable. It is not just the physical building you must consider, but also required drive lanes, turn-arounds, and parking. The soil is compacted enough to support structures without expensive additional work. An engineer can answer those questions for you.
There is no history of any potential hazardous waste discharge. Many investors buy raw land when they come into a cash windfall. As a result, they do not need any financing, so there is no lender around to require a Phase I Environmental Report - the report that alerts you to the possibility of hazardous waste on the property. This is especially a problem with raw land because you usually think it is pristine - pure and clean - but you could be wrong.
Where are the utilities? If you do not have nearby utilities, especially storm and sanitary sewers, it will be very expensive for someone to build on the property, or it could be completely impossible. You might not be allowed to tap into existing sewer lines. Is the land in the city limits or not? Building requirements can be completely different inside the city limits than outside. This will affect the cost of construction.
It is a little thing, but one often overlooked by new investors.What side of the road is the property on? Where is most of the nearby development? Most fast-food and retail chains like to be on the "going home" side of the road. If you are on the "going to work" side of the road, your property will take much longer to market.
You will use the discounted cash flow analysis method to calculate an offering price. You can do that if you already have in mind a particular tenant and know how much ground rent that tenant is willing to pay. If you are buying land as a speculative venture, then read the following questions regarding raw land.
Start with the value of the land. How much would it cost you to buy that land today? Disregard what you actually paid for it. Next, ask yourself how much you would want it to earn each year if the land were a bank account.Would you want a 6% return on your money, or maybe 10%? Of course, we would all like to earn 200% on our investments every year, but that is not possible. Be realistic. The marketplace will usually pay something between 4% and 10%. Once you establish your desired return, talk to brokers and potential tenants. See if your rental rate is considered reasonable. If so, that is the amount you should charge.
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1. Things to Know Before Selecting an Apartment
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