Apartment Buildings vs. Land

As you know we have been investing in cash-flowing rental properties for 15+ years, first single unit condos and since 2000 we have transacted over $166,000,000 in apartment buildings, and still own a fair bit. This is a good investing strategy and has served us and our co-investors/limited partners very well over the years.

But we also invest a portion of our capital in land, held for development. Why do we do that ?

First of all, they are making no more land (except in rare circumstances where they build dikes in low lying marshlands, or coastal areas, and then drain them)

Secondly, if held without an interest bearing mortgage, it is low risk, too !

(btw: Mortgages add risk to land, not the land itself. Land has no income, and as such it is hard to serve a mortgage with no income. One has to run against the clock to sell lots off, down the road, and if one doesn’t run fast enough the clock outruns the developer and one loses the land to the lender. That is why we do not have any interest bearing mortgages on land we own today ! )

Thirdly, land in or around expanding cities usually appreciates in value, even when doing nothing.

Fourthly, land has no tenant or management problems. It is easy & cheap to hold, basically trouble free.

Fifthly, land value can be enhanced, through rezoning or active development which dramatically increases the land value, from farmland to land with a certain zoning, to serviced land to built-on land. It often goes up in value 30-100 fold along this value chain.

The higher the allowed density, on average, the higher the land value. For example, a 10 acre parcel zoned farmland (no house allowed) might go for $10,000 to $25,000. That same parcel zoned for one single family dwelling, with farmland still, might be $50,000 to $100,000. That same parcel zoned, but not yet serviced at all, for 40 dwellings might go for $400,000 to $2M. 40 serviced lots on that 10 acre parcel might go for $4M to $15M, or perhaps $10M zoned industrial land. Substantial increases are possible with servicing !

That is why we also do land, with currently a very small portion of our capital under management.

Some examples are shown here in W-Canada: http://www.westerninvestor.com/index.php/news/55-features/1211-raw-deals

We will offer an investment product later this summer based on our 290 acre parcel in Cold Lake, AB with a target ROI of 100-200%. If this interests you, and you are an accredited investor, please feel free to contact us.