Investing in Transitional Land
How the Principles of Timing, Tax-Advantages & Financing Multiply Your Profits
Sometimes referred to as the “donut,” transitional land typically refers to agricultural land or wooded property that is transitioning to a higher and best use such as municipal development, residential development, or commercial / industrial development. The investment into farmland or undeveloped land requires proper due diligence and typically thinking with a long-term strategy. The estimated value and price per acre of farmland or undeveloped land in the transitional market is varied and in today’s market covers a wide range.
Factors Affecting Land Values
Land real estate can increase and shift in value for a variety of reasons. Typically these include a change in zoning, installation or expansion of roads, city utilities and the proximity effect of a new development.
When land goes from a non-use to a use or from limited-use to a higher and best use, there are increases in value. Owning land in this transitional period is vital to a higher multiplier of profits.
There are several tax advantages your investment into transitional land will have. Taking advantage of these benefits is key to real estate investments. Whether you are leveraging your purchase, utilizing a 1031 exchange for capital gains, or considering the variety of deductions to a hedge against inflation – transitional land represents one of the best opportunities for profits when appurtenances that qualify for depreciation are taking into account.
Knowing the Right Buyers
One of the most important factors in realizing higher profits is working with the right buyers at the right time. Whether they are investors, developers, builders, businesses or the end-users of the land, consulting with a land brokerage firm and land advisor with a network of these buyers is another key to success.
While every buyer of investment land and transitional land has a unique set of financial circumstances, there are many nuances to financing that factor into greater resale profits. From prepaid interest and interest only financing, savvy transitional land investors are very successful at pyramiding the profits from a land investment into greater and greater profits.
All said, the major emphasis on transitional land investment should be timing. A great first step is to build a relationship with those that are knowledgeable in the local land real estate market. Keep in mind that your land broker regularly works with buyer and sellers who have a successful track record in long-term planning to realize transitional land profits.
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Professional Land Broker & Advisor Johnny Klemme is a Published Author & Purdue Graduate
His reporting, interviews with Land & Real Estate experts, an advisory column and more can be found at www.PrairieFarmland.com/blog