In many areas, vacant land can make up the majority of the available properties at a tax sale. While it seems pretty simple on how to choose the best house to purchase, how can someone choose the best vacant land to make money with? In this Tax Sale Podcast episode, we go over just a few of the different ways you can profit from vacant land, which will help you with that selection process.
Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy.
I’m Casey Denman, a tax sale veteran, expert, and trainer, author of the tax sale playbook, founder of the tax sale academy and your host here on the tax sale podcast.
Thanks for joining me on today’s podcast, and as always, at the conclusion of this podcast, if you’re looking to learn more about investing in tax defaulted real estate head to taxsaleacademy.com. That’s taxsaleacademy.com.
On today’s episode, we’re talking about investing in vacant land at tax sale auctions. In many areas, vacant land can make up the majority of the properties offered on a tax sale list.
I frequently get asked how someone should invest in vacant land. Buying a home seems pretty simple considering someone would buy it to live in or as an investment rental property. That makes sense to everyone. But what about vacant land, how can you determine what exactly to buy?
The last thing most people want is a piece of land that they have no use for, that comes with a yearly tax bill. And I completely get that.
But, I’ve been investing in vacant land all of my career. I’ve invested in my fair share of residential homes, hundreds of homes throughout the years, but I’ve spent A LOT of time in the vacant land market. So today I want to help you choose what vacant properties you should be investing in.
First off you must understand the process of supply and demand. That’s all real estate investing is. It’s supply and demand. If you take a subdivision with 5,000 lots and 4,000 lots in that subdivision are for sale and no one wants them, you can bet that the prices are driven down. If you take the only remaining commercial lot in a city, then you can bet demand is up and subsequently so is price. It’s simple of course, but so many people tend to forget this concept. Always keep this in the back of your mind.
There are a many different types of ways to invest in vacant land. We’ll go over a couple today.
The first is to buy and sell vacant land in developing areas. And this is going to be the most beneficial and easiest strategy to pull off. It might not always be the most lucrative, but will certainly be the easiest of the three. Essentially, you’re buying land in the area of new development. Simply put, if you can drive down a road that has twenty lots and half of them have brand new homes being built as we speak, then that’s the area to invest. The construction activity indicates the demand for vacant lots in the area and is a sign you’re on the right track.
Now unfortunately, it usually won’t be quite as easy as driving down the street and buying up every lot next to a building site. But you should be looking at least in the same general area. My approach is to determine what the lots are selling for prior to the construction commencing. Let me take it a step farther . . . there are usually two types of construction – speculative building, where an investor or builder builds a house to hopefully sell after completion, and custom building where a builder is building a house directly for a customer on that customer’s lot. If you see a significant amount of spec homes going up, do your research. Find out what lots they’re going up on. Determine what the builders are paying for those lots. Most builders don’t have the time, desire or knowledge to attend tax sales. While they won’t overpay for lots, they know that their margin is made in the construction of the house. Contact a few of those builders, and let them know that you might have additional lots available in the near future in whatever areas are on the tax sale list, then ask if they’d be interested. Most builders would love to be able to focus on building homes and not worry about locating lots. Then, you’ll have your buyer lined up, you’ll know exactly what to pay and you’re on the way to making money with vacant land.
In the event that the construction your see are custom homes, determine what those end users are paying for their lots. Research public records and pay attention to the sales price and make sure they have fairly recent transfer dates. While you won’t be able to line up your specific buyer, you will be able to have great comps in an area that has evidence of great demand and you can find similar buyers.
The idea here is to get as close as possible to or in the direct path of that new construction and development activity. And of course, if you’re not local USE the internet – search building permits, locate spec homes for sale, you don’t need to physically be there.
That’s the first method.
The next method is speculating. And the word speculating tends to get a bad rap for many reasons. There are correct ways to speculate and incorrect ways to speculate. Buying a property on hopes and dreams is a bad way. Buying a property based on supply, demand and your knowledge is the good way.
There are a number of ways to pull this off successfully. A popular way is to buy based off of price in comparison to value. I’ve done this many, many times throughout my career. If there is a lot worth $2,500 but I can pick it up for $500, then I’ll buy it even though there might not be lots of demand for the property. If I can sell it cheap enough, perhaps I can create my own demand. Or maybe I’ll end up selling it to another investor…. if the margin is there and if I can nail down the value, then I’ll buy it. If I can 5x my money, even if it takes a year, that’s ok with me.
In The Tax Sale Playbook, I tell the story about buying a 13 acre parcel for $100. I know, without a doubt, that the demand for 13 acres is far, far less than the demand for say your typical single family home… especially in this area. But I bought it anyway. I actually contacted a Realtor a few days later who told me it would take a few years to sell. I was perfectly fine with that considering my margin. I intentionally underpriced it and sold it a very short time later to another investor and made quite a bit of money off this property, even though it was considered speculative.
The point is the you can speculate and make money. Just be conservative with your approach.
The final way to invest in vacant land that I want to discuss today is another form of speculation that I refer to as special purpose purchasing. I know a few guys that will buy small vacant mobile home lots that are in the middle of nowhere. The demand for these at market prices is pretty small. BUT, what they’ll do is offer them for sale with $100 down, $100 per month for 100 months or something catchy like that. They make more money than they’re worth because of the financing, they create demand because of their unique selling approach, and they still hold an interest in the property if they need to foreclose and do resell it again. It’s a great strategy that simply works.
Another strategy is to buy a property that’s zoned residential but is on the edge of a commercial area. Once you buy it, you can go in, get it rezoned from residential to commercial and then suddenly you’ve increased the value of that property and, likely, the demand.
These are special purpose purchases and have made a lot of people millions of dollars.
These are just a few ways to make money with vacant land. So many people are intimidated by or worse, they look down upon vacant land. Get out of your comfort zone, do your homework, put effort into determining strategies that work, and use a little creativity . . . as you can see vacant land can certainly be extremely profitable with the right approach.
I hope you’ve learned something from today’s episode. Before I wrap it up, I do want to remind you of two great resources. If you haven’t yet picked up your copy of Tax Sale Playbook, I urge you to do it now. You can grab it at TaxSaleAcademy.com. Just cover the nominal shipping cost.
And of course, if you’re looking to learn how to invest in tax defaulted real estate in a comprehensive step by step manner, you’ll want to join academy. On this topic of investing in vacant land alone, we go into great detail and provide numerous strategies that can really help you out; and that’s just one very small piece of the academy. You can join by going to the same website TaxSaleAcademy.com and clicking on join.
And as always guys, if you did enjoy this episode we’d really appreciate it if you take a few seconds to leave us some positive feedback and a five star rating. We read and notice every positive comment and are so thankful for those who have taken the time to do so already.
I really hope this has helped you out today. Take care. See you.