Have you ever been driving around your city or town and passed by an open field and wondered if that field might be the only undeveloped land in the area? I asked myself that question many times, and actually found it I regularly hire and talk to CPAs and lawyers before getting too far down the road in real estate. My brother’s law practice was the logical entry place for me. It is the oldest law firm in Arizona with expertise in all areas of real estate. I believed from the beginning that a portion of my investment dollars were to he earmarked, first for the land and, second for lawyers and other consultants who could better my chances for success.
The value of a team is self-evident. I always wanted to be the quarterback of our team at school. I knew the position was less about heroics and more about being sure the best support was in front of me. My job then was simply to remember the plays and throw or hand the ball to the best players.
MATCHING MARKET NEEDS WITH PRODUCT CREATION
Just because you buy a hotel doesn’t mean it has to stay a traditional hotel. Just because you buy an apartment building doesn’t mean it needs to stay an apartment building. Markets change, market needs change, and in order to be successful, you may find you have to change a property from one kind of product to another. Here are a few examples:
- Converting a traditional hotel into a timeshare property.
- Converting a rental apartment into a for-purchase apartment to the renter or another buyer.
These are examples of matching market needs with product creation. Space that already existed was transformed to create new revenue sources based on market demands.
When it comes to land, changes may involve simply splitting one larger lot into two or more residential lots or changing land permitted for one use to a different use that is usually better economically. Most often this requires the approval of the city or town (municipality) to consent to the proposed use change. This is called rezoning and/or the entitlement process.
For example, in my early experience with the mansion on the mountain got me consider about the economics of the land business. There’s a story about Abe Lincoln’s farm that makes the point about creative financial engineering better than I could ever make on my own. It seems Abe Lincoln bought his family’s farm from his father, Thomas, when cash got a little tight as a way to bail him out. Eventually, after Abe became president and one of the great figures of our country, the friends of the Abe Lincoln Historical Farm near Lerna, Illinois, took on the ownership. It seems the owners of this land had a brilliant idea. They wanted to give people of Illinois and the nation the opportunity to own a tiny piece of American history in an effort to raise money for the owner’s family. They planned to sell off small parcels of the estate to interested people. When they parceled out the designated acre, they had more than six million squares to offer the public. The net return on this is not known, but even with a low price for the land parcel, I am sure it was substantial.
This is the ultimate subdivision of land, almost beyond the scope of imagination. In the late 1970s we would joke about a wealthy private lender and investor named Bill Levine. We’d say that if he were dropped out of a plane with a parachute on his back in the middle of China and with no money, within a few years he would be one of the wealthiest men in China or wherever else he happened to fall. Some people just seem to know how to create wealth. They are the true financial engineers.