Land investment strategies - How do I invest

This page will take you thru a basic land investment strategy that will allow you several different exit options, thus enabling you to maximise your profits at the end of the investment. Remember that it is not until you sell your investment that you (hopefully) realize your profit.

The strategies mentioned here are shown with examples of how they could be utilized when investing at The Ark at Mountain Valley, and for your convenience, we have also made this document available for download via our Downloads & Images secion.

A simple land investment strategy works like this, step-by-step:

Step 1: Identify a target area

To be able to maximize gains when investing in land (or any other real estate product) it is imperative to get into an area “before the crowds “start investing in it. To a large extent it holds true that once you hear about “A great place to invest”, it will already be too late. A savvy investor tries to identify trends and patterns, to be able to capitalize once the general investor starts exploring the area.

Things to look for in general are change in patterns of movement of people, a change in tourism in an area, or a change in inward investment. In short, any major changes over time that will affect the attractiveness of an area that previously has been deemed “less attractive” for an investor.

As an example to prove the above, we need to look no further that Costa del Sol in Spain, Miami Beach in Florida, and numerous other areas in Spain and France that emerged as “hot spots” once Ryanair and other airlines improved the access to them. The same thing has been happening more recently in areas such as Croatia, Egypt & Morocco. These areas were not considered for investment only a few years back, but due to changes in patterns of tourism and investment, they have become very attractive investment opportunities. These examples are just a few to show what can happen, and the savvy investor didn’t wait to invest – they had the foresight to see what was about to happen – and could subsequently profit from that!

How does this apply to The Ark at Mountain Valley?

The pattern with which American retirees are moving has been changing over the past few years, and is expected to change even more over the next 5-10 years. The price of land in “traditional” states such as Florida, Nevada, California & Arizona has gotten very expensive, and planning permission is very difficult to obtain in those states. The taxes & cost of living in these states have also gotten much higher over the last few years, and the average American retiree can find it difficult to get by in these areas, and with the future expected reduction in social security payments this will most likely be the case for the future as well.

Arkansas offers all amenities that make it attractive to retirees and families alike, with scenic mountains & lakes, great golf courses in the area, and four beautiful seasons. The area still has extremely low taxes, and has recently started to see significant investment from big developers and recreational companies, and tourists and home buyers alike have started to follow them. Arkansas is still at the early stage of its emergence as an investment location, but now is the right time to get in – before the masses.

Step 2: Buy at the right price:

This point is very simple, there is a saying that in real estate investment you don’t make money when you sell – rather than when you buy! The lots at The Ark have been appraised at $17,000 USD each, and we are selling them for $15,000 USD each to guarantee a good entry price for our investors.

This point doesn’t really need any further explanation – just always keep in mind that land is only worth what you can do with it (create added value) and you should be careful not to overpay for your investment. It was this escalation of prices in “hot” areas in both Spain, Florida and other areas that helped cause the current issues we have in the market today. As soon as a market is led by speculation rather than sound investment values there is a great risk of overpaying for your land or property.

Step 3: Assess the quality of the land:

This point is imperative to be able to maximize profits (or to profit at all) from land investments. There are a vast range of criterions to look at but most importantly you should look at such things as if the land is “raw” or buildable, if it is part of a planned community, access to roads and amenities and also how buildable the lot appears to be. It is also very important to have access to local builders, both now and in the future, to allow several different options for your exit strategy.

While it may in some cases be true that land without planning consent may appreciate more in value once permits are issued, it is also a very risky bet from the investors’ point of view. There are never any guarantees that planning consent will be given, and until they have been granted the land isn’t worth much at all. Remember – land is never worth more than what you can do with it.

Land with good road access and building permission are usually very safe investments, since the land can immediately be converted into a residential building, and there is also no need to wait for the infrastructure to be connected. The most valuable land lots are usually the ones with access not only to roads, but also to electricity, water & sewer, which means that the owner already has what is called a “buildable lot” where immediate value can be added by building a house or other building.

Buying land without planning consent is a much more speculative venture and is not something generally done by the average investor.

How does this apply to The Ark at Mountain Valley?

The Ark is a planned residential community where all lots are ready to be built on, and also access to the infrastructure mentioned above such as electricity, sewer & water. The Ark is a planned residential community, meaning the lots are not just ready to be built on, but have also been designed as an American residential community with generous sized land lots.

Step 4: Look for low holding costs & taxes and additional benefits:

What this means is that you should try to minimize all associated costs such as taxes & maintenance fees. A big part of land investment is being able to hold on to your land, to enjoy capital growth as the area around becomes more popular and receives more investment. Too high taxes and holding costs can force you to sell your investment prematurely and not be able to enjoy the capital growth that you had expected.

How does this apply to The Ark at Mountain Valley?

A land lot at The Ark is currently only taxed at $3 USD per month, which makes your annual tax burden $36 USD! This should hardly cause any problems for any investor.

The HOA (Home Owners Association) fees are going to be set at $33 USD per month – and this will take care of maintenance & general upkeep of the property and also security. As an extra bonus, there will also be no HOA fees before January 2010!

Step 5: Define your different exit strategies:

There are a number of ways to exit out of a land investment, and these are the three most popular and most useful ones, in particular for land owners at The Ark:

Sell one or more of your land lots to a home builder or another investor. If you managed to invest in the right area, you should be able to see some good capital growth by the time you wish to exit. This is the easiest and probably most common way of selling your lots. If you have made it this far and settled for this option – you should now be able to see a profit on an investment which required very little additional capital and maintenance in the process. In the right area, there should be plenty of buyers who are looking to build. By selling the land without a building you are helping the new buyer “save” 20-30% by allowing them to build their own house instead of buying a ready made one.
Go ahead and build on your lot, and sell the house. This option can be very profitable since you will be able to make an additional profit on the house, which is on top of the appreciation in land value. The Ark offers you the flexibility to build when you see fit on your land, ad we offer several different homes - but you are also free to build what you want, when you want!

Remember that this construction will not usually need to be entirely self-financed. As long as sales values of homes in the area can show that your construction project is likely to bring a profit, banks are generally able to offer you construction loans.

Under certain circumstances and for larger projects, it may also be possible to pre-sell a certain number of units using more advanced strategies without even commencing construction. The money raised from pre-sales will then be used to fund construction in the early phases. This is a more advanced way of profiting from land sales, but done the right way it can be extremely profitable. This option will also require you to engage professionals such as architects, designers, brokers & mortgage bankers. By selling off-plan, you may choose to offer buyers a discount, to help getting sales in and to incentivize investors to buy.

Construct a small apartment unit/commercial unit and rent it out:

This strategy is based on the same principal as above, where you borrow money to construct as long as the project looks likely to bring a profit and the rent payments will be enough to cover the mortgage payments and also bring you a profit.

There are various strategies for pre-leasing commercial buildings before construction & launch, although these strategies are more advanced and will not be covered in depth here.

All of the above strategies can be used at The Ark, depending on your personal choice. As an extra service to our land owners, we will offer to help you list your property for sale with local/national brokers when you feel ready to do so.

In short, land investments are based on the same principles as any other investment – to buy at a low price, before the masses get in. If you can manage to enter the market at a low price and keep running costs low, you have every opportunity to profit. Land is an excellent investment since it will require very little maintenance and continuous spending, offers multiple exit strategies – and most of all it offers you the opportunity to build (or sell) the home of your dreams.

Please feel free to contact us if you have any questions regarding "How to Invest in Land", and to register an interest in investing at The Ark.