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Is 100% Annual Return On Investments Possible With Low Risk Land Investments?
In last week's article, we discussed how substantial profits could be made by investing where baby boomers may want to relocate or buy a second home. This seemed to confuse readers since they were thinking that our web site is about preconstruction and preconstruction to them means buying condos?? In this article, I hope to broaden your horizons considerably. Unlike many people, I have a very broad definition of preconstruction investing which can be summarized as follows: Preconstruction investing is the pursuit of real estate projects that offer the opportunity to ride rapidly increasing prices over time without the need to put tenants in place to defray costs. Since no tenants are involved, this opens the possibility to making investments in locales that are far removed from where you live. If you adopt this point of view, then a whole world of "alternative" preconstruction investments opens up to you. Today, we are going to look at one specific type of investment: investing in developing land projects where baby boomers might want to retire or own a second home. Before we get into the specifics, let's talk about what all investors want: ? Low risk ? Good investment returns; and ? Minimal use of their capital; Quite frankly, these 3 reasons are what got me into preconstruction real estate investing in the first place. Now let's see how these might be achieved on a purchase of investment land that we believe to be VERY desirable to baby boomers. Suppose we are considering the purchase of a piece of property for speculation of future returns. If, like me, you believe in the impact of the baby boomers, then you will do 3 things to control your risk: 1. Carefully select a land project where you are solidly convinced that baby boomers will want to possess it at any costs; 2. Make sure that you believe that baby boomers will be AWARE of this project in the future do to somebody's marketing; and 3. Manage your finances and investment portfolio so that if you are wrong and you do take a loss, it is not catastrophic to you. For the time being, let's assume that you have met these conditions on a project and now you are ready to analyze your returns and your use of capital. Now we have to resort to hard analysis. Let's look at the following ASSUMPTIONS: 1. The land project is assumed to increase at least 25%/Yr in price; If you take a look at the three cases in a spreadsheet format, here is how things might turn out under this scenario. Case 1: 10% down payment, interest only, all payments made by BUYER. Case 2: 10% down payment, interest only, all payments made by SELLER. Case 3: 5% down payment, interest only, all payments made by SELLER. Cases 2 and 3 require a bit of explanation. There are some early stage land projects available where the developer will take a percentage of your purchase price and escrow an amount that will make your payments for a period of time---- typically 2 years. This means that during your 2 year hold, you would only pay taxes and association fees. To enter this in the spreadsheet, we just show a 0% rate during the holding period. If you scroll down, you can review the performance of each case. It may surprise you that even under Case 1, where you paid in a total of $48,600 out of pocket, you still see a return on investment of 127%! That equates to 51% annual return on investment. Compare that to what your friendly banker is giving you in your CD. For many investors, beginning or not, they would prefer not to have to put in that much money so let's look at Case 2 where the developer has escrowed 2 years worth of payments. In this case, we invest a total of $29,000 with a total, out the door profit before taxes of $81,625 thus providing a total return of 281%. If you then extend that to Case 3, where only 5% down is required, then the return goes off the charts to well over 500%! So hopefully this article has given you a very different way to think about old fashioned land purchases in your real estate investing portfolio. Dr. Chris Anderson is a leading authority on real estate investing and has been referenced in many venues including the New York Times and USA Today. Free sign up at GetPreconstructionDeals.com for education and articles. Visit Mastermind Group for world class investing projects.
MORE RESOURCES: L.A.’s Real Estate Upfronts Reveal Penthouse A at Rosewood Residences Beverly Hills Hollywood Reporter Refined Real Estate: Unique Leschi home with lake views lists for $1,395,000 seattlerefined.com Coloradans negotiating lower fees for real estate agents with new law on horizon Colorado Public Radio Real estate mogul cautions about avoidable mistake when buying a home, explains how to avoid 'drowning' Fox Business Massachusetts real estate transactions for Hampden, Hampshire and Franklin counties May 19, 2024 edition MassLive.com Real estate transfers: May 17, 2024 RiverheadLOCAL Real Estate Newsletter Articles this Week: Housing Starts Increased to 1.360 million Annual Rate in April Calculated Risk London Real Estate Is About to Get the ‘Selling Sunset’ Treatment Hollywood Reporter Mid-May Greenwich Real Estate Market Report Greenwich Sentinel Should I Buy a House Now or Wait Until 2025: Expert Forecast Norada Real Estate Investments Dodge County Real Estate Transfers Fremont Tribune The Michael Houck Real Estate Guide for May 19 Oil City News Washington state ahead of the game as lawsuit rewrites real estate commission rules The Business Journals MCB Real Estate Revives Long-Awaited Viva White Oak Mixed-Use Project Source of the Spring STAR resource center Department of Taxation and Finance Yes, there are other coastal Delaware towns besides Rehoboth Washington Blade Dutchess County, NY real estate 2024: What's on the market for $579K Poughkeepsie Journal Baltimore real estate: 4 waterfront condos for sale The Baltimore Banner Revolution in real estate: How the NAR settlement is changing the game Eden Prairie Local News Real Estate Briefs: Lakeside homes, news condos, and more news Rough Draft Atlanta Home Prices Hit Record Highs in April 2024: Trends & Forecast Norada Real Estate Investments REAL ESTATE | UPDATE | Johnson Bus selling lot for new West Bend Fire Department No. 1 washingtoncountyinsider.com VIDEO | REAL ESTATE | Construction finally underway for Taco John's in West Bend, WI washingtoncountyinsider.com Innovative Leaders Vanderstraaten and Rohrman Inducted into North Texas Commercial Real Estate Hall of Fame ... dallasinnovates.com Here are recent property transfers up to $1.28 million St. Albans Messenger James Quinn's Data Center Advisory Expertise at JLL Drives Innovative Real Estate Solutions for Global Corporations Markets Insider Oceanport's Denholtz recognized by commercial real estate organization themonmouthjournaleastern.com Westmoreland County Real Estate Transfers | Real Estate | latrobebulletinnews.com latrobebulletinnews.com Real Estate Mogul Grant Cardone Closes Largest All-Cash Multifamily Deal In South Florida This Year Yahoo Finance Routt County real estate sales at $17.6M for May 9-15 Steamboat Pilot & Today China Says It Will Start Buying Apartments as Housing Slump Worsens The New York Times OT Real Estate Spotlight of the Week: 2115 Sheridan Place The Owensboro Times Robert Willett may be targeting female Realtors in Northeast Ohio Akron Beacon Journal Number of homes for sale in Metro Atlanta increased significantly, real estate brokerage says – WABE WABE 90.1 FM Billy Joel spends over $10M for sprawling East Hampton pad with horse farm, neighbors other A-listers New York Post What's real estate wellness? Fortune Connecticut real estate law changed after MV Realty investigation Eyewitness News 3 Billionaire Frank McCourt raises his hand to buy TikTok Business Insider Connecticut real estate law changed after MV Realty investigation Eyewitness News 3 Ellison sues real estate broker Chad Banken over alleged schemes involving contracts for deed Star Tribune Navigating Northern Virginia Real Estate: An Insight Into Rhonda Campbell's Bespoke Approach Grit Daily My Co-op Neighbor Never Pays His Maintenance on Time. Can We Make Him? The New York Times ACRES 2024 showcases innovative real estate projects focused on enhancing environmental sustainability Malaysia Sun Local couple buys Pat Burrell's former Center City penthouse for 38% under original asking price The Business Journals Letter: Clarifying changes to real estate industry Morgan Hill Times Home listings are on the rise in southern Colorado, while other indicators show a slowing real estate market Colorado Public Radio Sean Bloom Investments Announces $2B Real Estate Project in Las Vegas InvestorsObserver Southern fast-food chain Cook Out buys Tampa real estate The Business Journals Did Fort Worth’s real estate market really ‘bottom out’? | Fort Fort Worth Star-Telegram New Rules for North Texas Real Estate Agents Creates Uncertainty Dallas Observer EG Real Estate: 18 Opens This Weekend – East Greenwich News East Greenwich News KKR Real Estate Finance Trust Inc. 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