Land Development Values - Finding Quality Locations
As discussed in the second article in this Land Development Value series, your intended use is directly linked to the property's zoning and the municipality's "vision" for that parcel as it is expressed in the master or comprehensive plan. Your objective as a "developer" is defined broadly: make some change to a land parcel to increase its value when you sell it. With that foundation in mind, the next part of the process is deciding what to look for in a property. The first criterion on your list should be a quality location.
Why should you be picky about where your potential real estate development is located? Look at it this way. You can change everything about a property but you can never change its location. It is forever fixed and permanent. Forever is a long time so if you're smart, you won't compromise or trade off location for a cheap price. It's just too important to the big picture. Where the parcel is located directly impacts the suitability, feasibility and ultimate value of the land development. Several key factors are tied to location, such as whether utilities are available, the value range of neighboring properties, the types of present (and proposed) land uses in the immediate area, the parcel's visibility and its accessibility to public transportation and the area's road network.
What's a good location? There is no cookie cutter definition because it depends on the land development scenario contemplated. As a general principle, the parcel's setting should complement and enhance what you want to do with it, and your development scheme should dictate where you search for property and the characteristics that you want the area to possess. The following examples should give you some insight.
The most profitable use for parcels on local, high-traffic streets is some species of retail because banks, fast-food operations, gas stations and shopping centers need high visibility. But they also need to be easily accessible by customers. Retail businesses die where customers cannot get in and out of the properties easily by left or right turns. This is why you tend to see these types of facilities at corners or signalized intersections. By definition, retail uses (and office facilities for medical or dental services) generate a lot of transient traffic, so municipalities are usually very strict about where they will allow them to be located.
If retail is not an option, then office buildings may be a good fit (assuming that there isn't already a surplus of vacant office space in the area). The value of office properties would be enhanced if they are close to some form of public transportation with banks, restaurants and gas stations nearby. Factors that would tend to diminish the quality of locations of for-sale housing, like power lines and water towers, generally don't negatively impact the value of non-residential properties. Multifamily properties are more closely aligned with retail and office in terms of desirable locational characteristics. The second article used the example of a parcel close to a commuter rail station as a prime candidate for multifamily housing. Prospective apartment dwellers would be drawn to a complex that offered them the convenience of being within walking distance of public transportation.
On the other hand, the value of residential land developments is very sensitive to the makeup of their surroundings. A good rule of thumb is that the quality of the location should increase as you go higher up the scale in the price tag of the homes. So while amenities like open space and parks are always a plus for residential developments, they become almost necessities for higher-end communities. Some locational characteristics always depress residential for-sale values, regardless of whether the housing is expensive or entry level. The list of "bad" neighbors (besides busy streets, power lines and railroads) would include anything that can be clearly seen, smelled or heard, such as sewer plants, fire stations, airfields, quarries and nuclear power plants.
At last, there is a resource for people interested in buying or selling land. Check out Nancy Chadwick's real estate investing and land development guides, articles and books at http://www.LandBuyingandSelling.com/
