For example, I have recently been looking at some developed real estate, a Los Angeles condo in particular. The condo that caught my eye happened to be a foreclosure and was very attractively priced at $120K, WHAT A DEAL! The property had only been "on the market" for 2 days. When I called it had already received over 2 dozen offers and the actual price was already up to $220K. As a past “rehab-er” myself, I know this condo needs at least $15-20K in repairs and the after repair value is only $250K. Where is the profit? After acquisition costs (e.g. escrow and closing costs), rehab costs, re-sale costs (e.g. escrow, title, agent commissions), where is the profit? There isn't any.
Let me explain, when I say invest in land most people think of UN-developed real estate which is a vast amount of land with limited to no infrastructure in the middle of nowhere. I too avoid undeveloped real estate. The type of land that I invest in is what I like to call PRE-developed real estate; land with infrastructure in the predictable path of development near existing developments. I take it a step further by investing in commercial pre-developed real estate which is significantly more profitable than residential pre-developed real estate.
An educated investor understands a developer’s profit margins and is able to negotiate a price for his/her land based upon what the developer will earn from developing the property. Let’s say that a developer will be building a three story office building which he plans to sell for $10 million. If his/her construction costs were $6.5 million, he/she stands to profit nearly $3.5 million. Now let’s say you bought the land six years ago for $200,000. You could sell your land for $1 million which would leave the developer with a net profit of $2.5 million ($10 million - $1 million [land cost] - $6.5 million [construction cost]); that’s a win-win scenario. By the way, not only is this possible, scenarios like this happen often. Keep in mind selling a property for $1 million that you bought for $200,000 is a 500% return! A return like that is nearly impossible in developed and undeveloped real estate.
In short, there are two types of real estate developed and undeveloped. We’ve discovered a third, PRE-developed real estate. Nearly everyone who invests in real estate, ONLY INVEST in developed real estate. Whenever everyone is investing in the same strategy that strategy will have less returns usually with greater risk. Good judgement reveals that in order to have greater returns with less risk you must do something the masses are not doing, PRE-developed real estate is just that!
Join our next event to learn more about PRE-developed real estate and how to repeatedly earn greater returns with less risk.