How do we Make the Most of Our Land Purchase?

My brother in law told me a familiar story. Dad and mom had bought a lot cheap! Sight Unseen, no questions asked, just a sense of urgency generated by the salesperson and a signature on the dotted line. Every day Time shares, properties in remote areas, and other such foolish purchases are made and the transaction is hardly “Arm’s Length.” On one side is the salesperson who knows most people will never use such a purchase and will eventually just try to resell it, on the other is the consumer whom is excited, made to feel a sense of urgency, and ignorant of the odds of success.

Dan Tams would regal me with tales of people desperately searching for a lot they purchased “somewhere” in the area… And when you search for your parcel? You may not even have any road access. You might encounter individuals who will chase you off their land, maybe even take a shot at you. There is a whole real estate industry built on deceiving individuals who have not done due diligence.

You may be rest assured that when you purchased a lot in The Blue Mountain Ranches you avoided this trap. Certainly you have a valuable parcel. You have roads and easements that were put down for you by the seller, a team of individuals who have skin in the game, like yours truly… You will have a coop that can offer improvements and even a way to finance these improvements! Everything from Septic, Wells, and Power, to a custom made dwelling from a master carpenter trained, mentored as a child, in a family of expert contractors. 

But is this enough? If you buy your parcel and sit on it, how different are you from the buyer who bought swamp land in Florida and is just “sitting” on it? I mean, maybe one day they will drain that swamp and the land will increase in value… And maybe pigs will fly. Yes, there is no harm having raw land and letting the chronic scarcity of the ages increase the value of your holding, but is it maximizing your value? Is that really what you want to do?

Real estate is not maximized held as an unimproved long term investment. Historically data indicates you are better off with the stock market using a buy and hold strategy for long term appreciation. The value of real estate resides in its scarcity and utility. Why do you think a Bank is so ready and willing to secure a loan based on your home? As opposed to a parcel of raw land? It is not impossible to get a bank to lend on raw land, but banks generally will consider a home as much better security for a loan interest.

This means a lot of things to those willing to think creatively and intelligently: Your property tax and mortgage payments are a deduction. That means if you borrow a loan for 6% and get a 2% reduction on the mortgage & property taxes your loan is actually annually at 4% and not 6%. At 4% can you make 10% on the same money borrowed? Hold on… What if you just break even and make a 4% return, but have used the loan to build a home and rent it out? As long as you rent out the dwelling(s) at a price, greater than your mortgage payment, figuring in depreciation, you have maximized your land. 

There is a reason why, statistically, Real Estate is considered the fastest means to creating sudden wealth. When you improve a property successfully one can rinse and repeat. You secure future loan with the property, bought and/or improved. Real Estate investors generally try to make Interest only payments on a loan so more capital is available to go to work for the investor in this process.

My purpose in presenting this proposition is not to turn you into a Real Estate investor. Nor is it to claim investing is as easy as just using arbitrage and the value of property, to indiscriminately increase, a Real Estate portfolio . Rather it is to help you maximize the value of your property and to use it as a financial instrument through arbitrage and leverage.

For example, if you own a parcel and cannot buy outright, a solar system, can you use the land as security, to finance such a system? This allows you the ability to run things and it makes your parcel more valuable because of the improvement. With power you now can rent the space out to a trailer. With this stream of income now coming in, you can look to finance greater improvements like septic and a well. 

With these improvements you can develop the land for a small dwelling (200 to 300 feet with a simple expedited permit inspection). Your land is worth more so you can now finance this small dwelling and rent it out for a greater stream of income. You now have a rental income from a dwelling, either as an upsell to a tenant, or in addition to the trailer(s) rented on the land. 

You can charge more rent for a dwelling than a trailer, which many times is owned by the tenant whom simply will pay you for a space. Your space, in turn, being worth more with a hookup for electric (solar system) and a septic pond, so the trailer does not have to ride into a dump facility to drop a load (pardon the pun). The point is, the same basic principles apply to your parcel, as those governing how real estate investors use leverage and arbitrage. 

Let me conclude this post with a remainder that given the space of (for example) a ten acre lot, you can enjoy the fruits of your land economically, and let them pay for your own area, with your own cozy hideaway. The thing that makes the ranches so special, to me at least, is the beauty… the night sky filled with stars as far as the eye can see, the distant lights of Winnemucca, open 24/7 so if you want something to eat at 4am in the morning, you can find it.