Are you passionate about property investing? Do you spend nights and weekends doing market research and looking long and hard for investment opportunities? If you said no to either of those then land investing definitely isn’t for you. It’s a grueling and painful business to be in. One day you will see big dollar signs in the horizon, but the next day you will be swimming in debt. It can be extremely volatile, not to mention painfully slow. If you feel you are in the right business to be in on the other hand, you understand the complex industry, you’re good with numbers and forecasting, and your work harder than your competition, you could make A LOT of money with land investments and have fun doing so. The one great thing about this business is that you can do it pretty much alone. You don’t need a staff of 20 or 2,000 and the daily headaches that comes with that. You just need a small circle that you trust and can count on. Then you are ready to raise capital for land investments.
Questions To Ask Yourself Before You Begin to Raise Capital for Land Investments
What is the fair market value for land of this type?
About how much money to you need to execute the purchase?
Will you be building on the land or just waiting for it to appreciate? If its the ladder, how much does it cost to upkeep the land? If you are building on the land, how much will all that cost?
How much do you estimate the land to be worth at certain points in time after you purchase it? What kind of profit are you seeking and how long will that take roughly?
Make sure your EXIT STRATEGY is as thought as as humanly possibly. If it’s not, you stand to loose a lot of money and waste a lot of time doing it.
You performed all of the above processes and are ready to seek financing for your project. Are you funding this project or do you need additional capital and therefore partners? Taking out partners is the safe way because it limits your exposure to risk or losses. On the downside, you will make less profit. You have chosen to take out partners because you don’t have enough personal funds to complete the sale on your own, not because you want to reduce your risk exposure. You are also buying the land as an investment and not for personal use.
Personal funds can include the following: IRA’s (stocks, bonds, mutual funds), savings accounts, debit accounts, credit cards, home-equity loans, personal loans, and loans from friends and family.
Individual retirement accounts (IRA) are very common funding option for property investment. But its tricky and there’s a lot of red tape or major speed bumps. The best way to use your IRA is to do it through a Real Estate Investment Trust (REIT). REITs are securities that trade like stocks.
Savings, Debit, and Credit
Savings accounts and debit accounts are pretty straight-forward but just be sure you want to use your savings and lose the interest you get with it. Using credit cards for land investments is uncommon because you would need say 5 credit cards with a $20,000 line on each to get $100,000 total which typically is a drop in then bucket for land investments. Additionally, credit card bills are due every month and land investors wait for land to appreciate year after year. So you would just accrue more debt in the mean, a lot more debt.
Home-Equity and Personal Loans
A home equity loan is low-risk and the bank tends not to judge or restrict how you use the loan funds. The larger your personal financial investment in the business from other sources the easier time you will have getting a home-equity loan or a larger one…because you have “skin in the game”. With a personal loan, you need to inform the bank how you will be using the money for your business/investment.
Real estate is a risky business so don’t be surprised if the bank doesn’t approve you loan applications or approves far less that what you were asking for. This leads us to private lending from private investors such as friends and family, angel investors or a venture capital firm.
The current land owner quite possible be in a position to lend to the aspiring owner as is with the case with Santa Fe Ranch and Farms. Rates of return are typically in the 5% range and if the borrower fails to make any of the payments, the deal is voided and the original owns possess the land again, ready for a new buyer.
Loans From Friends and Family
You MUST create a written agreement or promissory note that specifies the details of the loan.
These can be anyone really and typically someone you know. They are affluent individuals who provides capital in exchange for convertible debt or ownership equity. Angels almost always share the same strong passions as those they finance. Angel investments require high returns and they don’t like to be in the game for very long. Get in, make money, get out. As-soon-as-possible.
Venture Capital (VC)
Venture capital is financial capital provided to young companies. The typical venture capital investment occurs after angel investors in whats called the “Series A” round. VC’s fund growth in the interest of generating a return through any number of exit strategies for the VC firm or the company as a whole such as an Initial Public Offering (IPO) or a sale of the company entirely.
This type of funding has only spouted up in the past few years with dramatic advances in peer-to-peer technology. In fact it’s actually skyrocketed as the new way for many companies to get off the ground if they have limited personal funds. There are four types of CrowdFunding — Crowd Giving, Crowd Financing (Reward Based), Peer to Peer Lending, and Crowd Equity Funding.
Real estate is a very taxing industry to be in. Its exhausting, risky, complex, and volatile. Personal wealth is the preferred method to engage in a land investment. You wont have other partners to work with, you wont owe any debt, and you’ll make the most money. But you shouldn’t put all you eggs in one basket even if you have enough to cover the costs. Taking out partners reduces risk and in this day in age with the risk and uncertainty associated with the real estate industry, that’s probably the best course of action until the market becomes more stable and predictable.
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