Development Density and Property Land ValuesAugust 17, 2018 / Blog / 0 Comments
Although there are sometimes opportunities to buy and “flip” raw land, most Arizona land investors, myself included, are operating under the conviction that the land they purchase will appreciate substantially while they hold it. The majority of my land investments follow the simple strategy of buying now and selling later at a much higher price.
Population Growth Creates Real Estate Demand
For an area like Phoenix, the reason for that appreciation is straightforward: The growth of the region creates a steady increase in the demand for real estate. And although there is a strong supply of land radiating out from the city in specific channels, the demand is naturally far stronger for the land that is closer to the developed areas.
The result is a natural increase of property land values as you drive to the city from the sparsely populated outskirts.
You can think of the Phoenix metro area as a series of concentric rings of development radiating outward from a handful of central points. The downtown areas, with their high rise offices and condos, represent the densest areas and the highest land values. Density and values decrease as you move away from the downtown core. They continue to decline as you move into the suburbs, into the sporadic development of outlying neighborhoods, and further still as you move into rural areas. In the Phoenix region, land as far away as Eloy is generally less valuable than land in Casa Grande, which is less valuable than Queen Creek, and less still than Mesa.
For the sake of discussion, we can conceive of 10 such rings radiating out from our city centers creating 10 different zones of development density and real estate values. The inner circles, say zones 1 and 2, would have the densest development and highest values. Each subsequent zone moving outward (zones 3 through 10) has less development density and incrementally lower values.
Where Phoenix Population Growth is Going
It’s important to note that once you take into account all the land unavailable for development, these “rings” are reduced to a handful of specific corridors for growth. The majority of the land outside the developed city is tied up in reservations, federal reserves, state land and the like. What’s left are not rings, but 3 to 4 well-defined paths of growth, cutting through the 10 zones of development density.
That suggests a clear strategy for the land investor, one that we have exploited successfully for decades: Buy land in front of that growth! As the growth radiates out, development density will increase and property land values will rise. Land in zone 6 will soon appreciate to what land in zones 4 or 5 was worth a short time ago. Land in zone 9 or 10 will similarly appreciate to the previous values of zones 7 or 8. It doesn’t matter so much in what zone you buy, only that you buy in the path of growth and that you buy for a good price relative to values in that zone.
High Rates of Appreciation During Development Cycles
Using this approach, and keeping a knowledgeable eye on development cycles, we’ve consistently enjoyed appreciation rates that range from the mid-teens to as high as 50-60% annually. Those rates of appreciation have made for extraordinary returns for our investors.
We also happen to think that the coming years will produce returns that will match the best deals we’ve had to date. It’s an exciting time to be investing in Arizona land!
As always, we invite you to tap into our momentum in this market. We partner with investors on our strategic land purchases. You can explore this website for those details, or simply give me a call.