Flipping Land: A Strategy

By Steve Gillman

People don't often think about flipping land when investing in real estate. It is far more common to flip houses, meaning buying them sprucing them up and selling them quickly for a profit. Land, it is assumed, is something you speculate on longer-term. But what I am proposing here is a strategy that makes flipping land not only possible, but safer than dealing with houses.

I've bought property and then sold it on a "land contract" several times. Sometimes called a "contract for sale," and other names, this simply means taking payments from a buyer, and then delivering the title when the property is paid for in full. It's a great way to make money with real estate if you already have some money to invest, and it is the basis for safely flipping land. The reason is that when you buy for cash you can get the best price, and when you make it convenient for the next purchaser by offering easy terms, you can get a higher sales price. Buy low for cash and sell high for easy payments--that's the basic strategy.

How Much Can You Make?

The first time I tried this was over 20 years ago. There was a little piece of land, just under three acres, for sale for $4,100. I offered the seller $3,300 cash, and we agreed to $3,500. Closing costs were lower back then, so I had just $3,650 into it. After raking it, removing dead branches, and laying out some logs to show where a driveway might go--a total investment of a few hours--I put a hand-painted sign on it: "For Sale, 2.5 acres, $4750, $250 down, $100 per month.

Two weeks later I sold it for exactly that price, with 11% annual interest. I closed the deal in a restaurant, with virtually no cost. This was my first real estate deal, and I had sold the land for 30% more than I paid ($1150 more). I collected hundreds of dollars per year in interest for several years before the balance was paid off. Because I made a profit and collected interest on my investment and that profit (the whole $,500 they owed after their down payment), the rate of return on my money was somewhere over 20% total.

This strategy works by making it convenient for the buyers who don't have enough cash. That 3 acres was worth about $4,000, but the buyer was willing to pay 18% more because he could pay just $100 per month. My terms made it possible for him to own that land, which is probably worth about $22,000 now, by the way.

Do this right and you can make over 20% annual returns on the money you invest.

Ways to Make More | Related Opportunities | Tips

Of course you can make more per deal with larger deals, but the return tends to go down because it becomes harder to get that big markup in percentage terms. For example, a lot worth $5,500 might be bought for cash for $5,000 and sold for $6,500 with easy terms--a markup of 30%. But few buyers would pay a 30% premium for a $50,000 property, which would mean paying $65,000. You might get $57,000 for it from the right buyer. The point is that you are better off putting your money into many smaller deals than into one or to larger ones.

Furthermore, you can often recycle your money faster with the smaller deals. To make a $57,000 property affordable you might have to offer a down payment of $2,000 and payments of $500 per month, which at 9% annual interest would mean over 19 years before you were paid in full. On the other hand, a $6,500 lot with $400 down and payments of $200 monthly would be paid off in less than three years. The faster the payoff the more you can roll the money into new properties and the more capital gains you get to make along with your interest.

In one key way land is safer to sell in this way than houses. It is far more likely that a house will be trashed if you have to foreclose on the loan for some reason and take it back. There is less to go wrong with land, and if you put in the contract that there can be no removal of living trees or minerals until the balance is paid, you'll have relatively little risk.

Always put the price in your advertising, or you'll never hear from many potential buyers.

Clean up the property if it needs it.

Qualifications / Requirements

You can start flipping land with as little as a few thousand dollars, although you may have to go quite a distance from home in some areas to find land and small lots that cheap.

First Steps

Look for an area that has cheap land; preferably with all the sellers asking for cash. I have done this in a subdivision that hadn't yet sold all the lots, for example.

Resources

How To Be A Dirt-Smart Buyer of Country Property, by Curtis Seltzer - Infinity Publishing 2007

http://www.totalrealestatesolutions.com/realestateforms/index.cfm - Free forms you can download and print.

Real Estate Investing Course - Free, and the subscription form is above.

Real Estate Development Made Easy - An e-book you can download and put to use today.

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