Anatomy of a Land Deal – How to Find Off-Market Development Land for Sale

Land investors have fundamentally different goals from end-users of land. End users have a specific purpose in mind: To build a subdivision, or a commercial center, to grow crops, etc.. The price an end-user can pay falls out of calculations related to the productive value their particular business use places on the land. Franchise restaurants know when development density in an area hits a certain level it?s time for them to build, and they?ll typically have a well-defined formula for what they can pay per square foot for the land. Most other businesses have similar formulas that dictate what they can pay to acquire the site and profitably expand their operations. What they want is a parcel with the characteristics they need for their particular business use.

Buy Arizona Land Anywhere You Find a Deal!

As Arizona land investors we don?t have a specific use in mind. Instead, our goal is to resell in the future, typically to an end user, at a price that will give our partners and us a good return. We buy land for investment only. We?re looking for a ?deal?, and we?ll consider property in many locations with a wide variety of likely uses. We strike when we find a piece at a great price that has characteristics that are or will soon be desired by end users.

But, most investors ask, how do you find those deals, specifically the great ones? I?ve addressed that subject more in depth in this previous article.

Aerial view of off market development opportunities in Arizona.

Typically, we are looking for off market development opportunities. That is, a piece of land that will have clear development uses in the future, but that for some reason has not yet been exposed to the greater market (or has only recently been exposed). In this post, I want to look at a recent example that just came across our desk in order to outline the network of relationships and specific knowledge that produced it. It is actually likely not an opportunity to buy and hold for the long term, but as you?ll see, it will be quite appealing to those who buy land for investment and will nicely illustrate how any number of our deals come into play.

An Arizona Land Investment Opportunity, and How it Came About

This offering gives an investor (or investors) a scheduled 17.5% annual return over a two year period.

A major developer with whom we have a strong relationship put some 250 acres of residential land under contract about 4 years ago. He negotiated a price at that time of $85,000 per acre with the expectation of closing in the future (which he?s doing now). Since then, the value of that land has appreciated substantially, perhaps to the $120,000 per acre range. He is well into the entitlement activity that will allow him to construct roads, distribute utilities and obtain individual parcel numbers for the buildable lots that the project will produce.

He has a zoning hearing scheduled for this month, after which he has 30 days to close. A last-minute change created a need on his part to find approximately 1.5 million more dollars. Given the size of the overall project, he has several options to do that:

  1. Raise additional capital from his investor group
  2. Borrow against all or part of the 250 acres, or
  3. Find a cooperative buyer to purchase a portion at his contract price but grant him an option to purchase it back in the future.

He is electing to pursue the latter option, and has contacted us to see what interest we might have.

The option would be for two years, and would pay our investors 17.5% annually. The best outcome for us, although highly unlikely, is that he doesn?t exercise the option and it expires in two years. The land is an area that is actively being developed and is already worth substantially more than the $85,000 per acre purchase price. Two more years of appreciation and improvements to the surrounding area would substantially further increase its value.

It is much more likely that he exercises the option at the end of the two years and our investors receive the 17.5% annualized return. That would be $612,500 profit in two years on a 1.5 million dollar purchase.

In our portfolio of investments, a 17.5% annual return is not unusually high. But the fact that the return is very likely within a couple years, and that the downside protection on this deal is so strong makes it quite attractive.

This is How Great Land Investments are Made!

Regardless of whether or not we are able to take advantage of this opportunity, the circumstances surrounding it perfectly illustrate how most great deals come about.

First, the sellers need to move quickly. In this case, a much bigger project has a last-minute complication that requires a search for additional funds. These parties know they can?t hope to sell at full market value as it would take too long. They also don?t want to lose control of the piece as its important for the future value of the larger project. They know they can?t generate the funds they now need on such short notice without creating a substantial incentive for someone else. So they price it very attractively.

Second, we know the players and the area well. In this instance, we were called because of our long history with the developer. If we got a similar call from a stranger offering the same deal in an area of town we didn?t know particularly well, we couldn?t pull the trigger. There is (almost) always time for due diligence once you?ve signed a contract, but you have to know a lot of related information from the onset in order to even be a serious candidate. If you don?t have that knowledge and the necessary relationships, it still might be a deal, but you?ll probably not get the call, and would never be willing to dig into the specifics or move fast enough even if you did.

Third, investor(s) have cash available and are ready to move! One of the best purchases we?ve made in the past few years came about after we had pooled some $3,000,000+ from a group of investors for one piece, then had a much better deal emerge that had a very short window of opportunity. We had already gone through the hard work of getting the money and investors ready for the first deal, so when opportunity struck on another we were able to move quickly. Nothing less than that fast action would have gotten the deal.

Your Next Step

If you are interested in exploiting land investment opportunities in Arizona I recommend you call me. Feel free to explore other articles or videos on this site to get a feel as to who we are. Then place that phone call. I?m looking forward to hearing from you.

Brian Matlock