Everyone has some idea of what land development is and how it works. That’s exactly it – some idea. We’ve been astonished and amused by some of the misconceptions our friends have had about what we do over the years. But we won’t address the sillier ones in this post. Here, we’ll discuss the more common misconceptions about land development as a process and investment strategy.
1. People are moving into cities, not suburbs.
This is probably the biggest misunderstanding we encounter when we talk to people. Most cities report constant development and growth within their urban boundaries: people are crowding in together and making city life denser every day. But even more expansion happens outside of the borders. Where there is transportation into the urban centers, people are ready to move into small houses and start families. In fact, though we associate urban culture with dependence on public transportation, cities are seeing young people settling within accessible driving distance. Growth in cities will always happen, as cities are dynamic and full of new changes. But growth around cities is much more prominent (and, for investment purposes, more interesting).
2. The only way to make money off land development is to be a land developer.
Several real estate organizations sell land parcels to people and tell them, “Go develop it!” For this reason, some people think that the only way to profit off of land is to be a land developer. However, time and time again, smart investors have shown the world that buying the right land in the right place is enough. You don’t have to build the wind farm to benefit from the appreciation in the value of the land. Let other people develop while you invest.
3. Small developments don’t count for anything.
Even a new septic tank on an otherwise undeveloped property increases its value tremendously. Big developments are just the sum of many small developments, so land that is beginning to see some small changes becomes more valuable because of the potential it holds.
4. No one is developing around Los Angeles.
When you look at the data on the number of new structures build around various cities, smaller cities seem like they’re developing, and larger ones seem less promising. But it’s easy to lie with statistics: the number of structures being built is less important than the kind of structure being built. A railroad can be considered one structure, but it is a huge undertaking that brings value to land for many miles around.
5. Beautiful scenery is bad news for development.
We’re not sure where people get this one. They look at an area and think, “It’s too pretty for development! No one wants to build huge buildings here.” But in fact, natural beauty is good news. Suburban areas, unlike the urban centers they surround, have room to breathe. People like to live and work near parks and wildlife centers, and if there’s potential for these, they will build suburbs around them.