For smaller to mid-size construction companies, there are several land buying strategies that can help them stay in business which larger capitalized builders do not need to use. It will enable them to take on building projects that mega companies cannot do.
Some examples are to:
- buy infill lots and build production instead of custom homes. Two advantages are that infill lots are usually found in areas where home prices are higher and where mass transportation is available. According to the EPA, about 21 percent of new metropolitan homes in the U.S. from 2000 to 2009 were built on infill lots.
- really get to know landowners before buying. Show landowners other projects you have built, offer to name streets after their family. Establish relationships with local large farmers and ranchers and ask them to call if they need to sell.
- maintain contacts with former clients and customers, real estate agents, engineers, subcontractors, friends, land sources; advertise and have PR; keep a social media presence; maintain a good local reputation and do not disappear during recessions.
- work with land banks in redevelopment. Many states have authorized land banks to reclaim blighted or tax-delinquent property of little value and renew neighborhoods. Become the first builder they think of calling. The property is not only in urban neighborhoods but now includes foreclosed subdivisions. Land banks clear titles and liens.
- find land on which banks are holding notes
- buy lots on C markets where margins and speed are lower but doable. Being unable to compete with known builders for best community lots, find others that local builders ignore for better prices and terms. Leftover lots, ones that need more excavating or in areas that older builders think are beneath them. Get a reputation for helping finish up the not-so-nice lots in communities when other builders are ready to move on. The challenge may be getting the prices low enough to be profitable and finding banks to finance them.
- find land capital partners. Land banks are only one method. Some equity companies will convey lot titles to builders with the agreement that they will be repaid when the houses are built and sold. This makes it easier for the builders to get bank financing for building the houses and not have to spend money for the lots up front. Partnerships can increase builders' balance sheets and make them more desirable to banks.
Watch the attached video about Eminem's land bank held childhood home in Detroit being demolished and the lot bid on by fans. Find a lot like that and the value of a home built there will have special interest.