What Are the Current Prospects for Investing in the Private Rental Sector?

Rental residential property has ascended to a level of importance among real estate investors due to a growing share of to-let housing properties.
The numbers that show the relationship between available housing and the growing population of the United Kingdom are nothing less than dramatic. The country’s population will increase from 63 million today to 70 million by 2021, according to the Office of National Statistics (September 2012), a stunning 11 per cent growth rate that exceeds the 7 per cent growth measure for the decennial ending in 2011.

This suggests that the UK needs about 225,000 new homes be built each year, notable in that 70 per cent of those will be one-person households. And yet, in 2011 only 113,000 housing completions happened, already short by half of what is needed with the current population. This supply-demand imbalance means the first-time buyer needs, on average, a deposit of £26,000, which seriously limits how many buyers actually qualify.

Which is the primary reason that the UK has a burgeoning rental housing sector. In the past decade, more than 1.8 million new private rental households emerged, raising that share of the total housing market from 10 to 17 per cent in just ten years. The Building and Social Housing Foundation, an independent research organisation, projects that this proportion of housing in the to-let sector will increase to 20 per cent by the year 2020.

For investors, such as those interested in real asset funds, this is a clear opportunity. And fortunately this is well past the talking stage. A legal and financial framework is already in place to facilitate investment in the sector. The two most influential programs are the following:

Build to Rent Fund – Launched in 2012 by the Homes and Communities Agency, this loan fund promotes the construction of new, privately rented homes. The fund was increased already in 2013 from £800 million to £1 billion, as the first group of projects are expected to deliver 10,000 new homes already because the reduction in risk to investor-developers.

Debt guarantees – The Department for Communities and Local Government also supports building new homes for the private rented sector. This is a direct government guarantee on debt that should reduce borrowing costs and effectively increase the number of homes built. It is specifically designed to attract investors who want a long-term return on investment that is stable and not exposed to residential property risk. Borrowers need to demonstrate a solid management structure, a viable exit strategy, suitable asset cover, a clear plan for how debt will be raised and a well-researched understanding of rental demand in the market (while national numbers are robust, areas where employment or student housing are strongest will consequently have the strongest rental demand).

The success of residential housing is nothing new, in both the to-let and for-purchase sectors. IPD, which provides performance analysis in the UK real estate industry, found that residential properties overall outperformed all other real estate categories (retail, office, industrial, commercial) in capital growth and rental value growth between 2002 and 2012. Land investment advisors are always on the lookout for such performance figures.

What has traditionally held back investing in residential markets are the higher operating costs associated with rental properties (e.g., 27.6% versus 7.2% in retail and 8.9% in office properties). This is why some investors instead work in the earliest part of development, such as with strategic land investment funds where land is acquired where housing is needed. These capital growth funds work to get land use designations changed and then create the infrastructure necessary to support housing. The land is then sold to homebuilders who specialize in construction and selling, in some cases to rental-management companies.

No investor should go about any real estate programs without first discussing their interest with an independent financial advisor. The investment needs to fit comfortably within an overall individual financial planning structure.

There are Hopeful Indicators for Investors in the National Planning Policy Framework

How does the UK Government’s National Planning Policy Framework favourably affect land investing?

The new rules from the NPPF, published in 2012, provide a kinder, gentler approach to growth. Cooperative efforts to satisfy environmental goals are recommended.

The UK government’s booklet on the new National Planning Policy Framework, published by the Department for Communities and Local Government in 2012, identifies that first and foremost, “the purpose of planning is to help achieve sustainable development.”

Should the use of the word “sustainable” send off warning bells to investors and businesses in the development sector? Probably not. Instead what the plan is meant to do is empower local communities in helping them build competitive economies, which clearly are part of the sustainability equation. Economic growth often requires some shifting of land to development, or at the very least allows for repurposing of existing properties for something new and needed.

The NPPF stresses many things that should cheer existing residents, local officials and strategic land investors and developers alike:

• Enable local creativity in how a community is fashioned to develop new residential housing stock.
• Encourage economic development as a priority.
• Use high quality design, including the best thinking on affordable sustainability.
• Promote urban vitality concurrent with supporting the sustainability of rural communities.
• Promote mixed-use development.
• Conserve heritage sites in proportion to their significance.
• Encourage growth that makes optimal use of active transport, including walking, bicycling and public conveyances.

With a clear understanding that these are the objectives, investors and communities should be able to come up with solutions that are mutually beneficial. Already the NPPF and the Localism Act, which as the name implies distributes power away from regional planners, are credited with improving the rate at which councils assemble local plans. More than 100 local authorities were working with front-runner communities on neighbourhood planning by mid-2012.

The most important benefits to land investors are the speed of approvals and greater power at the local level. Authorities who are now charged with approving zoning changes and related projects have a far keener appreciation of the needs for housing and commercial development in their towns. They understand the imperatives of employers who need people living in close proximity to their workplaces. They might also recognize where certain sections of dedicated greenbelt lands fail to achieve the green objective, and might be rezoned in innovative ways that meet both development and environment goals. And where to-let housing might be needed more than owner-occupied structures, then that may be what is built.

Land investors looking for capital growth are likely to work in partnerships with other investors and land acquisition and development specialists. Persons interested in joining such partnerships should speak with an independent financial advisor; their mission is to assess all investment vehicles relative to the individual’s ultimate financial outcomes.

The Re-Emerging UK Real Estate Market

By Chris Westerman

Investors from emerging markets are increasingly turning to UK real estate as a reliable, long-term investment target. As the market grows crowded, however, they are taking a more granular approach to it, seeking low-leverage opportunities in supply-constrained sectors. The residential sector in particular is garnering investor attention, as demographic trends and government policies point to strong fundamentals in the short and long term. Of the many facets of the residential sector, the provision of consented land to the house-building industry offers perhaps the best opportunity.

After the fallout of 2008- 2009, UK real estate quickly became a target for emerging market investors, especially from Asia:  in recent years the market has solidified its standing as a top destination for global investors in property funds and land funds in particular.

According to the recent Global Investor Appetite Survey, published by Navarro, a UK-based global real estate law firm, 73% of the 600 investors interviewed were likely to increase their allocations into UK real estate in the next two years.

Investment is coming from all parts of the globe, but Asian investors have taken the lead since the last financial crisis. A recent feature in the Financial Times highlighted the emergence of these investors, and the surprising role of Malaysia in particular. Malaysia has emerged as a significant investor into UK real estate in recent months. The size of Malaysia’s pension funds, relative to their domestic stock and bond markets, has encouraged them to look overseas and the UK has been a primary beneficiary.

They are being joined by Brazilian pension funds, which are looking increasingly at alternative investment asset classes abroad in response to low domestic fixed-income rates. Offshore-orientated Chinese insurance funds bolstered by government policy changes, abundant liquidity and local currency appreciation are also increasingly looking offshore.

These investors are attracted to transparent‘re-emerging’ or developed markets such as the UK and in today’s global market place, wherever an investor is based, a sound investment proposition anywhere in the world is something that will be considered.

There are unique political and demographic circumstances that are driving the market in England. The UK’s population is expected to grow from 61.4 million in 2008 to 71.6 million in 2033, an increase of nearly 17%. At the same time, household density is set to fall from 2.3 to 2.15 persons per household between 2013 and 2033.

To meet this projected household growth, figures from the UK Government’s Department of Communities and Local Government suggest that 5.8 million housing completions are needed in England in the 25-year period between 2008 and 2033.

An increase of 61% over the current level of housing completions will be needed every year in that 25-year period in order to meet that additional demand. To meet this demand, several stimulus measures have been introduced including the Help To Buy Mortgage Guarantee scheme, the Help To Buy Equity Loans scheme and the Build To Let scheme. The results are already apparent, with home mortgage approvals having increased dramatically over recent months. Asset prices are also up, with house prices nationally rising 8%in the year to February 2014, and the consensus is that this trend is gaining momentum, particularly for newly built homes.

According to the Construction Register, newly built homes in the UK are more popular than ever before, while a recent survey by Halifax on house prices shows that new builds are outperforming the rest of the UK housing market, with an average value 9% above the norm.

But even as these policy measures stimulate demand, supply is nowhere close to meeting it. There is no way anytime soon that the sector will be overburdened by an oversupply of housing. All political parties in the UK appreciate the gravity of the situation. The housing shortage in the UK is so acute that there is absolute cross-party political support for the need to increase housing supply and this is unlikely to change before the end of the next Parliament in 2020.

A key problem facing the sector is a shortage of consented land for the development of new homes. This shortage remains the single biggest constraint to increasing housing supply. It is also the provider of a compelling investment opportunity. The delivery of land with planning consent provides the largest value uplift anywhere within the real estate value chain. This opportunity has not gone unnoticed by international investors. After the fallout of 2008-2009, UK real estate quickly became a target for emerging market investors, especially from Asia. They are now increasingly recognizing the specific opportunity of delivering land with planning consent.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Land Development Two-Step: Why Investors Profit By Selling to Homebuilders, Not Homebuyers

Investors are drawn to land for residential development. But they might do better completing only part of the process, selling rezoned property to homebuilders.

This is an exceptional time to develop raw land for residential and commercial use in the UK. With a growing population, a housing shortage reaching crisis proportions and recession-devalued land, all the key factors favour the investor-builder.

But if it were so easy, why do not deep-pocket investors, builders or landowners simply cash in on such a fortuitous confluence of circumstances?

The facts include that not all land is appropriately situated for residential development. Not all towns are amenable to change of use authorizations and economic growth. In many areas existing transport and other broad infrastructure cannot support new inhabitants. Not all homebuilders have the capital or stomach for carrying land through the process of acquisition, rezoning, construction and marketing. And not all investors wish to be involved in the same process.

But there are land specialists who can look at the full land-to-homes development process, even if their financial interests encompass only a portion of that. This is a relatively new approach and one that is gaining popularity among investors who look to land as an alternative investment to traditional and volatile market-traded securities. Real estate, after all, has built some of history’s greatest fortunes, in the UK as well as in countries around the globe.

The equation boils down to two factors:

Return on investment timeframe – In the traditional model, a homebuilder (and its financiers or investors) assumed all risk over the lifecycle of development. From site selection to acquisition to rezoning to construction could take as long as five years – sometimes even longer – when situations such as a deep recession make it unlikely the homes would sell. But breaking the task into two pieces – where an investor group coordinated by land experts identify optimal strategic land and achieve use changes, then sell to homebuilders to construct the properties – each player reduces the time over which their capital investment is tied up. Land investors can cut that time down to as little as 18 months.

Skill sets – It is one thing to know the market of homebuyers (what they want in kitchens, gardens and bedroom sizes) and quite something else to know how to achieve land use designation changes with local planning authorities. When an investor group can focus on the latter, and do a very good job of crunching the numbers to determine an optimal return on investment, the business of actual construction and marketing of the built properties can still be the province of homebuilders. Each of the two players can focus on what they do best.

Make no mistake, there are additional transactional costs involved in this two-part development scheme. But experienced land specialists who initiate the entire enterprise typically work with a handful of national homebuilders, establishing means of transactions that are efficient and do not necessarily involve third-party brokers.

In the best of worlds, there are no unseen variables, the spreadsheet for each project could be etched into stone and the precise profit margin could be predicted. But through the process of development, much can happen. The point is that experienced investor groups and the homebuilders will be able to minimize the risks, identify variables and have the talent to circumvent such problems as they arise. Meanwhile, each will stay on top of developments within their respective professions and industries to identify new efficiencies. It’s a formula for continuous improvement – and comes at a time when buying low and selling high is a likely scenario for all parties in the development chain.

Individual investors are now participating in land development to a degree never before seen (typically, they would have a minimum of £10,000 or more to invest). But such individuals should always consult with an independent financial advisor who can assess whether land investments are a good mix with the investor’s broader portfolio.

The Importance of Property Surveys In Joint Ventures

Joint ventures in land depend on surveys to document investment quality.

Land investments are subject to an apples-to-oranges dilemma in establishing pricing. But the industry has survey methods that investors depend upon.

All property carries some value, but the conundrum is that land and buildings are akin to snowflakes: No two are alike.

For example, Parcel A of 20 acres may carry a magnificent view of the sea and enjoy just the right amount of access from a highway. Parcel B, 20 acres situated across the road, might stretch up a steep, rocky hillside and be riddled with industrial waste from decades ago. Further, one or both parcels may not have been sold for generations, which leaves an absence of comparative numbers of then-versus-now valuations. Participants in joint ventures in strategic land investment are well advised to invest in A over B for obvious reasons.

This is why all real property undergoes property or land surveys, which help determine the market value of the asset. The outcome of a valuation is particularly important for investors who may not even physically inspect the property but who instead depend on land investment specialists to identify and manage the investment.

A property survey involves looking at a property for both its tangible characteristics as well as anything that can impact its value in the future. A “cost-“ or “summation approach” to valuation takes into account the land minus the cost of depreciation or replacement of buildings on the property.

For individuals and institutions participating in land investments and commercial property that will be rented (including those purchased in joint ventures), the “investment method” is used. This method takes into consideration the potential income stream for renting the property, as demonstrated by the rental rates of similar properties in the immediate vicinity.

A variation on the investment method is the residual method, used for properties that are raw and likely to be developed. This method requires a well-considered plan for how it will be developed, taking into account the following:

• Land value
• Development costs 
• Site preparation costs, including demolition of existing buildings, decontamination and remediation (in brownfield lands), and construction of roads and service diversions
• Fees (legal, selling agents, stamp duty land tax, options costs)
• Minimum profit requirements
• Gross development value for the completed development

Land investment consultants necessarily must provide full accounting in a prospectus document to potential joint venture participants. Potential investors should also engage the services of an independent financial advisor to determine if and when a land investment is an appropriate component of their investment portfolio.