As investors, it's vital for us to make the "highest and
best use" of our properties. In a global real estate sense,
this phrase is defined as the use of a property that makes
it the most valuable to a buyer or the market.
From the point of view of an individual investor, it means
one single use will result in maximum profitability through
the best and most efficient use of the property. So, it
definitely pays you to understand the various ways in which
to change land use to get that maximum profitability. In
this article, I'll describe several methods for achieving
this objective.
Method #1: Assemblage This refers to the combining of two
or more adjoining lots into one larger tract to increase
their total value ("plottage"). You can more efficiently
develop the larger tract and increase its value through
redevelopment. For example, you might buy several small
tracts and combine them into one large lot in order to
build a multi-unit apartment building or a commercial or
industrial structure.
Method #2: Lot Splitting This is the opposite strategy of
assemblage. You take a large tract of land and then divide
it into several smaller tracts. The outcome is that you can
receive a much larger income than you would if you kept the
land as-is. One commonly used technique is to split a large
tract into several tracts and put small multi-unit (1-4)
residential properties on each. This way, you get more
favorable financing as well as income.
Method #3: Conversion of Use This is simply taking the use
of a property and converting it to another use. An example
is buying an old storage facility, renovating it, and then
converting it into office space. In an ideal situation, you
get the original property at a low price and gain the
rewards of long-term income and appreciation.
Method #4: Zoning This can be a very profitable strategy in
areas where there are expanding populations. For example,
assume your city is growing outward toward agricultural
land, and you've identified this land as being in the path
of progress. This means the land becomes less productive in
real estate terms; that is, it now doesn't have its highest
and best use. So, you buy the farm land and then get it
zoned for residential, commercial or industrial use. Since
it's in the path of progress, the land you purchased should
grow in value, assuming you've done due diligence in the
proper fashion.
Changing Land Use-The Negatives Sometimes, the biggest
obstacle to changing land use is dealing with local
government bodies (planning departments) and local
communities. For example, you may run into communities
where holding anti-development attitudes. If that's the
case, you could have a costly legal battle on your hands
when seeking to change land use. The solution is to do your
upfront research on the local conditions and attitudes.
Find out if the planning commission and the community are
pro-development or anti-development, and then make a
decision as to whether or not to proceed.
Another potential disadvantage can be your own lack of
knowledge. Assume, for example, that you buy a piece of
land in order to attract commercial businesses and later
find out it's zoned strictly for residential use. The key
is to do your research and do it carefully so you avoid
this situation altogether.
In conclusion, when you're involved in real estate
investment, the changing of land use can be a valuable tool
for increasing property value and income. The solution is
to take the temperature of planning commissions and
communities in order to determine their attitudes toward
development before you ever proceed with your plans. If the
attitude is pro-development, then you'll have relatively
smooth sailing. If it's anti-development, you'll have to
decide if it's worth the time and expense to fight the
battle that's likely to ensue. As always, consider the
situation in an objective manner.
Key Concept: Keep a keen eye out for changes in land use
that can increase the value of your properties.
Jack Sternberg
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Jack Sternberg is a nationally recognized expert on real
estate investment and the creator of the renowned "Buyers
First Program" who's been in the business for more than 30
years. Sternberg's deals have totaled over $750 million and
he's been to the closing table more than 1,500 times. For
more, visit http://www.askjacksternberg.com
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