There
are numerous and diverse investment opportunities in real estate,
including land, residential developments, office buildings,
shopping centers, industrial projects and mobile-home parks. In
this portion of the book, the principles presented in the prior
chapters will be applied to an examination of these various
types of investments.
Whether
the investor in vacant land is a speculator or a developer of
buildings, the property's location and physical quality will
have a significant impact on the success of the investment.
Timing strategies, farming losses, development costs and
community attitudes also affect the land investor's potential
profits.
More people invest in residential
property than in any other form of real estate. Residential
investments include ownership of a single-family detached house,
an apartment unit in a cooperative or condominium and multiunit
apartment buildings ranging in size from duplexes to highrise
complexes.
An important feature of
residential real estate ownership is the landlord-tenant
relationship established when a house or apartment is rented.
While these relationships are usually amicable, unpleasant
circumstances occasionally do arise. The necessary commitment to
active management, including the resultant interpersonal
relationships, inhibits many investors from participating in
residential rental ownership.
Of all the forms of real estate
ventures, investment in vacant land probably provides the
greatest opportunity for creativity and profit. Simultaneously,
it is no doubt the riskiest real estate investment, requiring
the most good luck. Ranging from the simple purchase of an
improved lot in a subdivision by an individual who wishes to
build a home, to the more complicated accumulation of hundreds
of unimproved acres to hold for future development and
subdividing, to the acquisition of a tract of land in
anticipation of rezoning for a more intensive use, land is the
real estate developer's and speculator's playground.
Many people purchase a lot in
anticipation of building a house on it in later years. By
acquiring a homesite at current costs, such a buyer hopes to
profit from its growth in value over time. Simultaneously, many
of these buyers, unable to purchase a lot for cash, enjoy the
opportunity to make affordable payments over time so that the
debt on the lot will be paid in full prior to construction. The
free and clear land then becomes the equity necessary to secure
a mortgage on the building.
In addition to residential lots
purchased for future use, investors also buy strategically
located vacant lots in anticipation of a rise in value and
profitable resale. Generally, these speculative lot purchases
are based on the possibility of a successful rezoning of the
property for a more intensive use than single-family residences.
Included in this inventory are lots physically suited for
multifamily apartment projects and office structures as well as
for commercial and industrial developments.
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