In my career as an independent asset manager, I have specialized in property, especially on undeveloped land, building land and potential development land as an investment as well as other alternative investment forms compared to traditional forms of investment such as banking products.
If you follow a few basic rules, an undeveloped property can be a very attractive investment. That is why I call this form of capital or investment “interest land”. Where you receive rent or lease income instead of “interest” or simply create values through in-house production.
Additional Income Through Unbuilt Property
In addition, an undeveloped property offers the chance of additional income. By adding value within the holding period to your portfolio.
This refers to the difference between the purchase price you paid for the purchase of the property and the sale price you receive on sale for your property. For private individuals after a holding period of 10 years, the additional proceeds from a land sale are even tax-free in some countries!
Taking into account all income from the property, such as rent or lease income and deducting all costs and taxes of your property, plus the additional proceeds, the return results for the owner come from his “interest land”.
The return on the capital you use to acquire your undeveloped property is called the return on equity. The return on your property can be further increased by not providing the purchase price entirely from your own financial resources but replacing a part with a cheap mortgage loan.
Adjusting Rent for Profit
You also benefit from the difference between your “rent/lease interest” and the currently very low loan interest rate. Your return on equity increases drastically.
I recommend a loan of at most 50% of the investment sum only if absolutely necessary and a fixed interest rate for a maximum duration of 10 years. However, it would be better to finance the purchase price completely with your own equity.
I increase the rental income of a property by regularly adjusting the rents within the legal limits up to the usual local level within the holding period. Often there are other options than just leasing, such as renting mini-pitches for garages, parking or storage space for storage containers.
Pitches for beekeepers, limited agricultural use, space for advertising or vending machines are other options as well as clothes-, waste paper- or glass-collection boxes.
The property’s additional income can be increased by offering a particularly attractive investment to a future buyer by increasing the rent/lease income in advance. Example: You acquire your property with a rental yield of, for example, “6% p.a.” and increase these within 10 years holding period to “8% p.a.”.
For sale in the future, an investment with a rental yield of at least “4% p.a.” a very attractive offer for investors. Because of the over-indebtedness of the EU Member States, a continuation of the low-interest-rate policy is to be expected and at the same time, capital investment opportunities will also adjust downward in terms of interest rates and, in addition, only selected clientele will be accessible. So, it is to predict that in 10 years, an investment with a yield above “3% p.a.” is a very attractive investment in the market.
In that case, you could sell your property for more than double the price and, for 10 years, you could collect the rental income from the property.
‘Slicing’ it Apart
Another very attractive way to increase the profit and additional income for your property is the division into several individual properties. This ideally offers undeveloped land/building land in residential areas from a size of 2,000 m².
These can then be divided into common construction lots (with an area of 500 m² each) for the construction of small detached houses. Usually, the smaller lots are easier traded on the market in relation to larger ones as they are usually more popular. Because many families only have the monthly loan installment when looking for a new home so they compare the financial burden to their current home rental.
So, it is not uncommon that you can buy on the market a 6,000 m² lot below half the land value. You will receive three times your original purchase price after splitting it up. In addition, a sale after a ten-year holding period can also result in a tax-free venture for private investors.
Other factors that argue for investment in undeveloped land: in contrast to built-up land, the costs during the period of holding in the asset are rather low. It also eliminates the risk “rent nomads”, “damages + repairs to buildings” or deterioration of the construction structure.
Assuming that construction continues steadily, and the population increases gradually, one can assume that a piece of land in general no longer falls in price. If you need money at short notice, a property can also be lent as collateral for a loan.
That’s the reason why clever businessmen buy one property after another…
In any case, your vacant lot equity has a good chance to at least double in value in a 10-year cycle.
Therefore, For My March Investment…
I bought a property of 1.65 acres in the European South. The lot includes 72 olive trees that are between 15 and 20 years old and therefore are mature enough to produce an annual fruit yield of over one ton of plump olives each year.
I have managed to finance the investment with my remaining balance from the garage sale from the first month, the profit from the wine sales from last month as well as the savings I made during the first quarter of 2019 by living frugally I was able to save EUR4,000 per month working part-time only.
With this, I was able to invest the accumulated funds into this new property including the real estate agent and notary fees as well as property taxes.
The investment price of the property of less than 17k Euro will generate a net annual ROI of 25.67% the first year with the harvest of over one ton of fleshy olives that the 72 trees will yield.
By selling the actual potential olives harvest to retail customers for a gross sales price of $7.50 per kilo I will be able to recover my investment within four years.
For the future, I plan the construction of a self-sufficient Sipping Container Home “Earthship” on the property with recycling material including a container pool that I will then use as a rental estate to increase my passive income and I will increase the 72 olive trees to at least 200 olive trees to grow the value-added in the coming 10 to 15 years.
Let me know if you need assistance and tell me what you invest in to become financially independent in order to retire early.
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