Categories
Wholesaling

How Wholesalers Can Monetize Land and Increase Value

Land leasing is a good option for achieving long-term returns on your investment

Land is a form of real estate often neglected by wholesalers. Most wholesalers flip properties, but flipping undeveloped land has unique advantages of its own. It requires less upfront capital, and there is less competition.

The typical land wholesaling model is the same as property wholesaling: you enter into a contract with a motivated seller to purchase the land below current market value, and then either flip the land or sell the rights to the purchase contract to a third party for a profit. But one added benefit of land wholesaling is there are options to further increase the value of raw land while you have it under contract, by subdividing it into multiple parcels or applying for a change in zoning.

Rezoning to Add Value

Rezoning, or changing the use district of a particular parcel of land, is a common way to increase the value of non-residentially zoned land. By changing the use district of industrial or agricultural land to residential or commercial use, you can increase the value of your land by anywhere from 100-400% of its original value. You don’t have to own the land outright to apply for rezoning – just make sure that rezoning is permitted in your contract with the seller if you intend to change its use district before flipping it.

The process of applying for rezoning can take a few months or up to 2-3 years, and in addition to meeting all the requirements set by your local authority, it’s also important that you research and understand your city’s plans for development in the future. For example, changing from a residential to commercial use district could either increase or decrease the value of land, depending on whether or not the city has plans to prioritize commercial development in that area in the coming years.

Splitting Parcels

Subdividing land, or splitting a single plot of land into two or more parcels, can increase the value of land and the total amount of rental income you receive from it. Legally subdividing a property can be a lengthy process – it usually takes several weeks or months from start to finish, and will require that you submit an application to the local authority for approval. You also have to take into account the zoning restrictions and specific rules in your area (such as the minimum permitted plot size) when splitting your land into parcels, and will need to hire a surveyor to plat the land. Usually it costs between $1,000-$3,000 to subdivide a piece of land into two parcels, but the benefits of doing so can be considerable. Smaller parcels are more affordable, and thus appeal to a larger number of buyers and tenants, and it’s possible to increase profits on a single piece of land by as much as 100% when selling or renting it out as two smaller parcels.

As long as it’s permitted in your contract with the seller, you can subdivide land while still under contract, but you will need to close with the seller before selling the individual subdivided parcels outright. The major benefit of this wholesaling strategy is that you can subdivide a plot into 4 parcels, for example, and sell 2 of them outright, leaving you with 2 parcels that you own free and clear.

Don’t be scared off if you find a great piece of land to wholesale and you’re worried it will take too long to rezone or split. Instead, negotiate with the seller on a longer purchase contract as it doesn’t hurt to ask. If that doesn’t work, you can also try more of a partnership agreement with the seller, where you do all the work and then split the profits.

How to Monetize Undeveloped Land

Once you’ve sold some of your subdivided parcels and closed the contract on a land wholesale deal, you can sell the remainder of the parcels outright, or monetize them in other ways.

Developing raw land yourself can be a costly and time-consuming process which may not be feasible for wholesalers operating in different states. There are other ways you can generate income from land without having to develop it. These options do take more time and energy than simply selling your land immediately, but the result is higher profits on each plot you own in the long term.

Rent your land to a small business venture

Land leasing is a good option for achieving long-term returns on your investment. If you market your property to the right audience, you’ll find there are a whole range of unexpected business plans which only require raw land to get started. Archery ranges, escape rooms, and drone race tracks are just a few examples of businesses that will pay to rent land, even without any structures or facilities in place. These businesses generally require plots anywhere from .2 – 3 acres in size, so even if you don’t have a huge amount of land, this can still be a viable option for you.

Put up a parking lot (without paving paradise)

Having a parking lot can be an inexpensive way of monetizing your land. Even if your land isn’t near a very transited area, you shouldn’t necessarily discard this option.

Try to think of who may have parking needs and may want to pay lower fees than those charged in downtown areas. A perfect example would be truck, bus and coach companies, since these usually prefer inexpensive options to keep their vehicles overnight, as opposed to expensive central locations. For some of these clients, you won’t even need to pave the land, and they usually pay somewhere around $10 per vehicle for parking overnight.

Rent-to-own

Rent-to-own is a type of transaction in which the tenant is given the opportunity to buy the property outright after a maximum lease period of 5 years. The tenant usually pays you an initial deposit of 3-5% of the property’s value as a purchase option. A portion of the monthly rent then goes towards the purchase price of the land, and after the initial leasing period, the tenant can exercise the purchase option. If they choose not to proceed with the purchase, you can begin the process over again with a new tenant once the agreement ends. It’s also possible to monetize land using a lease-to-own agreement while you still have the land under contract. With a sandwich lease agreement, you can sign a lease-to-own contract with the seller, then sign a separate lease-to-own agreement with a tenant-buyer of your own, who pays a higher rental rate. Once the lease term concludes, you can complete the agreement with the seller and close the deal with your tenant-buyer.

Partner Up!

If you’ve got a free and clear piece of land, it’s an asset, that like cash, you can invest in a deal. In this case you can put up your land as your part of an investment in a new construction or development project. Look for active builders and developers in the area of the land and see what they’re interested in doing.

If you subdivide into parcels, wholesaling land could lead to you owning some plots essentially for free. Whether you decide to sell these outright or pursue a long-term monetization strategy for the land you own, any revenue you receive will be 100% profit, and that’s perhaps the biggest advantage of the land wholesale investment model.

Image Courtesy of Marek Mucha

Categories
Wholesaling

How To Market Wholesale Deals.

How to market deals without large adcertising budgets?

The two most important skills that real estate wholesalers can have are sourcing great deals on properties for sale and finding solid buyers for their purchase contracts. In order to maximize the number of potential buyers you reach, it’s therefore crucial to know how to advertise contracts for sale in an efficient way (without running into any legal issues).

Wholesaling itself is legal, but keep in mind when marketing your deals that selling someone else’s property without a license is not permitted in many states. You should always make it clear in all marketing materials that you are selling a purchase contract, not the home itself, otherwise you could run into legal issues. If you’re unsure, talk to a specialist real estate lawyer to make sure you are doing everything above-board.

With that in mind, here are some of the best ways to market wholesale deals to potential buyers without the need for a large advertizsing budget:

Networking Events

One of the best tools a wholesaler can have is a great network of potential sellers and buyers. When you have an extensive network, you open up greater possibilities for word-of-mouth advertizsing. Up to 50% of word-of-mouth referrals lead to a successful sale, which makes it the most powerful kind of marketing, and what’s more, it costs basically nothing.

Going to local networking events is a great way to meet people in your area who could one day become your customers, or help bring you potential leads. You can find networking events taking place in your city on Eventbrite.com or Meetup.com.

You could also consider joining industry-specific groups, like your local REIA, or a business club, such as Business Network International (BNI). Alternatively, there are also one-off real estate industry events which you could attend to find buyers and sellers in your area.

Linkedin

Linkedin has become an essential online marketing tool for sourcing leads and generating sales across a variety of industries. Its free version allows you to filter searches based on a person’s type of job, position, location, company size, and more, meaning you can target your marketing messages at potential buyers in your area.

Linkedin allows you to send a connection request with a message to those who fit your target customer profile. If you don’t have enough time to sift through hundreds of professional profiles and contact them individually, don’t worry – there are many tools, such as Scrab.in, which you can use to automate your marketing efforts through Linkedin.

Cold calls

You may think cold calling sounds fairly last century, but the truth is that cold calls are still an effective marketing technique – although less effective than referrals, cold calls still have a 2% successful closing rate.

If you’re nervous about the idea of calling up strangers, there are tools you can use to send potential customers a ringless voicemail instead, meaning you won’t have to speak to leads one-on-one until they call you back and express interest in the property. You can find contact details for your target market by using paid tools, like Skip Trace Lists.

Social Media

Social media is one of the best options for marketing wholesale deals, because it provides a huge potential reach and requires less time and effort than other forms of advertizsing. You can upload a description of the deal and pictures of the house to attract buyers, while also helping you build visibility for your company or personal brand. Having a dedicated Facebook, Instagram or other social media page to promote your wholesale deals will also make you easier to find for buyers searching for homes in your area.

In wholesale deals, communication is key when dealing with both the seller and the buyer, so always communicate clearly and honestly about the fact that you intend to market the property deal. When advertizsing deals, you should disclose the current state of the property, and provide an estimate on any necessary renovation costs, as well as the estimated property value after repairs.

Image Courtesy of Martine Savard

Categories
DIY

How Long Does It Take To Fill Rental Vacancies in Metro Detroit?

The amount of time it usually takes to fill a rental vacancy varies from area to area

Rental vacancy rates are an important indicator for investors to judge the strength of individual real estate markets, because these shows whether or not there is an adequate demand for the number of rental properties available in a given area.

Rental vacancies are also one of the biggest impacts on landlords’ net operating income (NOI) each year, so, apart from retaining tenants, having a short turnover time is crucial for minimizing losses. According to SmartMove, vacant rentals cost landlords in the US $1,750 each month, on average, so investing in an area with lower vacancy rates and quick turnover times is essential for maximizing the return on your rental investment.

Vacancy rates in Metro Detroit

Vacancy rates across the country reached their peak in 2008 and have been steadily decreasing year-on-year ever since. According to FRED, the average vacancy rate in the US in Q1 2020 was 6.6%. Census data for 2019 shows that rental vacancy rates in Michigan were at 6.8%, and 6.2% in the Metro Detroit area, down from a peak of 12.8% in 2010.

According to the most recent data from HUD, Oakland County has an overall vacancy rate of 4.68%, although apartments are in even higher demand, meaning complexes have only a 2.4% vacancy rate. By comparison, Wayne County has an average rental vacancy rate of 6.7%, with apartment vacancy rates at 3.4%, Midtown Detroit has a vacancy rate of just 1.9%, and the highest rates in Metro Detroit are seen Detroit, sitting at 5.3%, on average.

However, in the Metro Detroit area, vacancy rates have been steadily declining, due to population growth and the corresponding increase in rental demand. There’s been an increase in the number of rental home developments in recent years, but it’s estimated that the current planned construction projects in Oakland and Wayne will only account for roughly 20% of the new rental homes that will be required to meet this demand, boosting competition for existing rentals on the market.

This is good news for landlords, as prices have been going up, while turnover times are getting shorter.

You can find vacancy rates for the 75 largest metropolitan areas in the country at cccensus.gov, but this data won’t tell you what the average rental turnover time is for each specific neighborhood. The best way to find out how long it takes to fill a rental vacancy for your property type in your area is by talking to local real estate agents, landlords, and property management companies. They will be able to give you an insider view into the current rental demand in your market, the amount of time a typical turnover process takes, and the kinds of issues which generally slow down or speed up the process in your neighborhood.

Rental turnover times in Metro Detroit

So how do vacancy rates translate into turnover times? Higher vacancy rates in an area means less demand for rental properties, which in turn creates longer turnover periods for landlords looking for new tenants. In Metro Detroit, rental homes on average remain vacant for 52 days, and turnover times can reach up to 90 days, depending on several conditions.

The amount of time it usually takes to fill a rental vacancy varies from area to area, with rural properties generally experiencing longer vacancy periods than urban rentals. The type of property also has an impact on vacancy rates – for example, student rentals have longer turnover times, owing both to the summer holidays and more intensive repairs requirements. Single and multi-family rental vacancies also experience seasonal swings, with turnover periods taking longer during the winter months than in the summer, when rental demands for family homes are 51% higher, on average.

In Metro Detroit the tenant turnover process is particularly fraught with difficulties: finding quality tenants can be a challenge, meaning there is a greater risk that landlords will have to deal with evictions or time-consuming and costly repairs between tenancies. All of this can drive up the number of days your rental sits empty throughout the year. The best way to combat these issues is to be highly selective when choosing tenants and to manage your rentals well to avoid unforeseen issues when the lease ends.

Pricing is also a key determinant of rental turnover times. Interestingly research indicates that, across all rental property price brackets, slightly lowering your asking rent correlates directly to a shorter turnover time. On the other hand, overpricing a rental and later reducing the asking rent leads to properties spending longer on the market and achieving lower rents. Ultimately, pricing your rental competitively will lead to a shorter turnover time and drive up competition for your property, letting you be more selective when it comes to choosing the best tenant.

Working with a good property management company, having a solid rental marketing strategy, and carrying out thorough tenant screening are the best ways to ensure that the turnover process goes as fast and smoothly as possible for your Metro Detroit property. Vacancy rates in the area have been steadily decreasing, so if you’re still experiencing longer-than-usual turnover times, it might be worth talking to your property manager, or revising your pricing, advertising, and tenant selection strategies.

Image Courtesy of Sarah Trummer

Categories
DIY

Landscaping Your Rental On A Budget

Image Courtesy of Felix Mittermeier

The kitchen and bath may entice your potential tenants, but offering a beautiful, inviting outdoor space can be the tipping point for a place they’ll want to call home. The cost of beautifying a property varies greatly depending on the scope of the job and materials used. Since your rental property is a source of income, any expense must justify itself with a return on its investment — resist the urge to over-decorate. If you’re working with a limited budget, there are inexpensive landscaping design concepts to make the area more attractive.

Declutter the yard

Costing you not much more than your time, this is one of the easiest and cheapest way to spruce up your yard. Merely pulling some weeds and removing any dead or overgrown vegetation can freshen up the yard’s look. This may be all you need, but if you decide some landscaping is in order, you’ll have a clean palette to work with.

Outdoor Lighting

On a warm, sunny summer’s day, the outdoor area may look fine, but after sunset, it may lose some its charm. To experience what your tenants will encounter while enjoying a starlit nightcap, stop by the property in the evening and see for yourself. Is it inviting and attractive or boring and unfriendly? Landscaping lighting fixtures not only bring a dramatic look to the yard, but they can also double as an added security measure. There are several options that can brighten a drab looking space. For the garden, spiked lights can illuminate boundaries and walking areas, while providing a pleasant accent. Depending on your budget, spiked lighting can be hard-wired, battery-operated or solar powered. Another inexpensive alternative is tiki lights or string lighting with a timer or photosensitive switch. Easy to install, they can be strung through trees, from eaves or over patios or decks to highlight the space while providing a warm glow.

Paving Stones

If the outdoor area is small and/or receives limited sunlight, trying to maintain a lush lawn will become an effort in futility. Installing stone pavers will eliminate any dry or muddy dirt patches, instead turning it into an appealing useable patio area. After properly leveling the pieces and filling in the cracks, you’ve got yourself a multi-season functional outdoor space.

Flower Boxes

Flowers brighten even the most boring spaces by adding color and vibrancy, but unless you want to spend your time gardening, they aren’t always the best choice for a DIY landlord. If you insist on flowers for the yard, but don’t want the maintenance headache, incorporate flower boxes into your design. They are cheaper and require much less work than traditional flower beds — virtually eliminating the need for weeding. You can use old care tires or recycled wood for rustic DIY feel. For a bit more pizzazz, paint the rubber or wood frames to add color to your outdoor space.

Ornamental Grasses and Evergreen Foliage

Perennial ornamental grasses are versatile and incredibly inexpensive as compared to other flowers, trees or shrubs. Ornamental grass is super low maintenance, while adding lots of color and texture. Evergreen vegetation, such as small trees, bushes or shrubs add a dynamic that most tenants will enjoy. They require very little maintenance while producing a warm, plush setting with just an occasional trimming. Though most grasses and evergreen plants will thrive from direct sunlight, most will do just fine in partial shade. Plant or pot them near the patio, along walkways or fence lines for privacy.

Disregarding the outdoors can cost you with fewer walk-throughs and potentially excellent renters. Even if your property is a drab, concrete jungle, there are inexpensive, low-maintenance landscaping ideas to add color and character to the yard. Potential tenants might love the kitchen, but if the outdoor space looks like an abandoned graveyard, many will consider alternative properties. Renters shop on emotion, so if the space makes them “feel good,” that might be all you need to snag yourself a long-term tenant.