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;
2. We plan on holding the land for 2 yrs and then resell.
3. $200,000 purchase price with $5,000 in closing costs.
4. Annual taxes/association fees of 1%.

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.

---

How I Became a Real Estate Investor

Recently I closed on the sale of two homes. They... Read More

Real Estate Growth: How Long Will It Last?

There has been speculation in the media recently about the... Read More

Time Is A Major Real Estate Wealth Growth Tool, So Use IT And Watch Your...

In Real Estate "Time" is a Wealth Development ToolsReal estate... Read More

Buying A Home ? What Is That Noise!?!

You've found the perfect home, closed escrow and just finished... Read More

How to Make a Buyer Fall in Love with Your Home

If you are thinking of selling your home, there are... Read More

Personal Debt Can Disappear When You Set up a New Business

I teach students how to set up a new business... Read More

New or Old House?

A lot of buyers think that a new house is... Read More

How to Calculate Real Estate Rehab Profits

If you are investing in real estate you will face... Read More

6 REASONS for Investing in Florida Real Estate Investment Property NOW

I invite you to take the next few minutes to... Read More

Selling Your Home ? What Can Go Wrong With Pricing and Loans

So, you're selling your home (house, townhouse, condo, apartment, land,... Read More

5 Steps To Choose the Best Cincinnati Realtor

Excluding some professional real estate agents buying a house is... Read More

An Investors 1st and Most Important Lesson

Are you ready for the lesson that will put you... Read More

What are the Elements in Real Estate?

Each element has a specific color associated with it. Because... Read More

How to Decrease the Value of Your Own House

Owning a house is part of the American Dream. Depending... Read More

Advantages to Buying or Owning a Condominium

Condos have become an increasingly attractive home ownership option for... Read More

Real Estate Investing Deals That SkyRocket Your Net Worth 10-Fold

Consider these parameters for a real estate deal:Property Value: $250,000... Read More

How Do You Profit From O.P.P.?

In a previous article we introduced you to the concept... Read More

Negotiating and Sales Skills Are Critical

When I first started getting active in creative real estate,... Read More

Real Estate Professional in the Palm of Your Hand

GETTING THE MOST FOR THE LEASE-TRACKING YOUR REAL ESTATEIf you... Read More

A Possible Bargain: Foreclosed Properties

In the superheated San Francisco Bay Area property market, foreclosed... Read More

Home Hunting and the Internet

So, it's home hunting time. Where do you start? Who... Read More

Make Money As A Slumlord

Be a slumlord? Okay, I got your attention, now the... Read More

Real Estate Investing In Mexico

Mexico is CHEAP! But its getting more expensive. As property... Read More

Staging Homes for Top-Dollar Sales

Wouldn't it be nice to have Roger Hazard's design team... Read More

Conventional Financing For Wholesale Deals

This info is very important for both new and experienced... Read More

An Ideal Way to Purchase Your New Home without Strict Banking Regulations

You've searched high and low around town looking for that... Read More

Evil Gains Entry

When we open our doors to strangers, we can never... Read More

Why I Love Country Living

As somone who has lived in both places, I can... Read More

Buying Foreclosures - Knowing Why Helps You Buy

One big potential deal-killer in buying foreclosures is the homeowner.... Read More

Investing In Commercial Property

Why commercial property?Compared to residential property investments, commercial property offers... Read More

Grab Your Dream UK Home On The Cheap - Property Auctions

Did you know that every year thousands of UK properties... Read More

Panama is Hot - A World Class Retirement Haven Thats Ripe For Profitable Real Estate Investment

If you've followed any of the major survey agencies around... Read More

Do You Speak Real Estate?

Anyone interested in real estate should be able to talk... Read More