Buying raw commercial land is one of the great ways to invest in commercial real estate. It’s been one of the fastest appreciating real estate assets in Texas in the last twenty years.
But, where to start? Let’s look at some of the things you should consider:
1. Lot Dimensions.
Well, first… when you just start looking you want to get the lot dimensions. If you wanted to build a strip center for instance, this will help you see if you have enough depth to put in the building as well as adequate parking in front of it (or behind it if that’s where you want to put the parking!).
So… you need someone that has the tools to be able to do quick measurements. This lot is 50 acres and has a lot of frontage on Gosling and is deep enough to put in parking, a building and detention.
So… that looks pretty good, let’s go ahead & buy this! Not so fast….
2. Flood Plain.
Aah… the flood plain, ok, let’s see what we’ve got here.
Well… that’s not nice, most of the property is in the flood plain. Okay, but, we could possibly use the land in the flood plain for parking and build the buildings on the land out of the flood plain so it’s not the end of the world. But, good thing we know about this now… maybe we can negotiate a better price. So… let’s make them an offer. Hang on there! Not so fast….
What? Wetlands? Yes… this is an extremely important check that could hit your pocket-book hard. If you have wetlands on your property that are listed on the “Core of Engineers” database of wetlands you might have to “mitigate” those wetlands if you want to develop that land. The way it works is for each acre of listed “wetlands” you remove or develop, you have to pay for an equivalent acre to be maintained in a “wetlands bank” or some other recognized preserve where wetlands are being maintained.
So… oops, I see we have some wetlands here. Just over an acre’s worth. Going rates for wetlands mitigation per acre in the North Harris County area can run up to $100k so it’s a good thing we spotted this now before we make our offer. We could potentially use this to negotiate a lower price. Or, we could negotiate for the seller to escrow some money to cope with any potential mitigation if our feasibility confirms it is wetlands that has to be mitigated.
Okay… so, we’ll make an offer that takes into account the flood plain & we’ll ask the seller also to escrow at least $100k to cover possible wetlands mitigation? Could we go ahead now & do that? Hmmm…. no, let’s check a few more things.
4. Water & Sewer.
If we’re going to be developing this land, maybe putting a shopping center on it or some multi-family, we better figure out where our water & sewer service is coming from. A well & septic solution couldn’t handle a large multi-family development and, besides, it takes up a lot of extra space for the drainage field it requires.
Ok… well, it seems we might be in luck. The “Northampton MUD” looks like it’s located across the road. If we went to their monthly board meeting & requested capacity maybe they would be able to provide us with service.
Phew! That’s a lot of stuff to take into account! What else should we consider before making an offer? We’re getting close….
5. Traffic Count.
Well, if you want to put a strip center in there we should probably look at the traffic count… retailers like high traffic counts.
Hmmm… only 7,080 cars per day? That’s not good enough yet for a well performing strip center. We should probably wait to develop that part of the deal once the Grand Parkway opens up just South of this. Grand Parkway? Yes, you didn’t realize that it’s coming in literally a few hundred feet of this location?
6. Other Factors – like roads, developments.
Developments surrounding a property can have a big impact on future value. If you’re not operating on a daily basis in the business then you don’t hear about many of the deals going down. In fact, in the area below we note: the Grand Parkway, the proposed new “Springwoods” development and the big ExxonMobil development which is already under way. But…. within the same image, there are a few large multi-family, homes & apartment developments that are coming but which nobody (outside a small group) knows about yet.
There are more things we need to check out during the feasibility period but I think we’re good to go with an offer.
We need to value the land that’s out of the flood plain differently to the land in the flood plain and we need to take into account what other buyers have been paying for land in the area.
So…. bottom line is this. Just buying a piece of land is great. Maybe you’ll see a “For Sale by Owner” sign & want to deal directly with the owner. Be very careful when you do that…. there are many things to consider and it could be worth hundreds of thousands of dollars to you to have professional advice guide you through a purchase of raw land.