Thinking of investing in commercially zoned land? The featured image used here is an excellent opportunity to purchase a prime parcel in a great location within the growing community of Chino Valley, Arizona.
Perhaps you own a business and want to build a building for the business, while also enjoying the long-term benefits that owning commercial land can provide. After all, you won’t work forever, and someday you might want to sell your business and lease the property to the new owner.
Here are five rules to follow for investing in a commercial real estate parcel.
First Rule: Location
We have all heard the statement “location, location, location.” Whether buying a home, a vacation property, rental units, a multi-tenant office, or an industrial property, the location rule should be followed when investing in any type of real estate. With each type of commercial real estate, this becomes the first consideration, driven mostly by the property’s anticipated use. When it comes to developing a parcel, location plays a critical role. The choice of what to build is driven by population density, trade area, and a host of demographics that can literally determine outcomes for a business. Roads, access, visibility, traffic, population, household income, market demand for your product or service, and competition are factors that demand what we call situs or position in a given market.
Second Rule: Size
Size matters when it comes to site selection. The parcel’s acreage and square feet must accommodate the required business demands. Building size, parking (including ADA approved), ingress and egress needs are considerations. Is the parcel large enough for expansion? Do some homework and understand that city and /county zoning can have an impact on what you can build, how many square feet you are permitted to have, and whether you can build more than one level (floor). Many communities have economic development requirements. Don’t assume you can build what you want. Ask a commercial real estate professional for guidance.
Watch the video for a perfect example of a parcel worth purchasing.
Third Rule: Package
By package, I mean the total quality of the parcel. Let me explain, briefly. If you invest in a parcel for a dental practice that is on a hilltop or one buried deep in the forest that has no paved roads, no power, no water, no building pad, and yikes, no Internet, you have a poor parcel package. Conversely, if you can acquire a flat buildable parcel with all you need in terms of market position, correct size, proper zoning, paved roads, location (visible and easy to find), with all of the utilities in place, and one that has been surveyed and has an architectural plan for a building, you’ll be better off. Here’s an example of such a parcel. When investing in a commercial real estate development parcel, look for the most complete package you can find in a location suitable for your business. If you need advice, let me know.
Fourth Rule: Cost
When I say cost, I don’t mean the acquisition price. If you are investing in a parcel or multiple acreage, cost is driven by the prevailing labor and materials market AND the demands of your unique model. Costs include every component involved in the development of your building(s) on your parcel. If you have he right location, the right size, and a total package of zoning and other amenities, your additional costs will involve building a team for drawings, financing, approvals, construction, FF&E, and marketing. It all begins with a great parcel in a great location that has the total package in place, ready to go. LIke this one. Unless you are paying cash for your property and the construction of your building, one of the most important things I want to mention is adequate capital. You will need the money to finish. While I am not a lender, I can give you some contacts for project funding. Interview them and make a decision.
Fifth Rule: Term
I often ask my clients two questions. The first is, “What are your economic objectives?” Maybe they want to purchase a commercial parcel to hold for several years without developing the property. If so, what return might they realize based on the historic performance of similar properties? Of course, this underscores the importance of the Third Rule, which is buying a good package. The second question I typically ask a client who is investing in a commercial parcel involves those who plan to develop and lease the building. I want to know, “How long do you plan to hold the property ?” This second question is tied to the first, as most commercial property investors will not hold a property for decades. Of course, there are exceptions, and many investors will hold a property for 10, 20, and even 30 or more years. This is their desired approach, and it can be a good one.
Naturally, this article does not include every variable involved in buying a commercially zoned real estate parcel. Myriad factors come into play and if you have questions about your existing commercial real estate or, need advice for a future investment, please contact me.
Download the Feature Sheet for a one-acre, ready to build parcel. Open the offering memorandum.
Read my Qualifications Brief.
