Monday, April 29, 2013

Making money from undeveloped land


Abiodun Doherty
It is amazing that many have unused land in their hands without making money from it or using it profitably in any way. The common idea is that buying land is good and the longer you hold it the higher the value goes. This is true.
As some investors say ‘land does not eat’, meaning that you can buy a piece of undeveloped land and do nothing on or with it and still make money because it gains value. However, this is not entirely right or strategic in many instances.
An asset is not only something that gains value but also something that puts money in your pocket. In the world of money, cash flow is king. Your purchase of land is an investment which should not only give you capital appreciation but cash flow or income value.
If we make a comparison with stocks, your investment gains capital appreciation when your stock gains value and you enjoy cash flow when you receive dividend payments. It is this cash flow aspect in relation to undeveloped land that many do not pay attention to.
When land is developed and the property is leased or sold it’s easy to understand that it brings in cash but when dealing with undeveloped land you need to be more creative.
One idea to consider is to grow plants or crops that could be used by you or sold to others on your land. What you grow and use saves you money and what you sell gives you income.
There are several small farming businesses that you could start and run on a plot of land devoting your weekends and free times to it.
This has inspired many to take bigger steps in fully going into business. What better place to start your own business than your own land?
Another workable idea is to lease your land to those who need it for farming or operation of businesses that does not require too much infrastructure. At other times, where the supply of water is an issue we have seen individuals drill boreholes and turn the need into a business. Indeed, many small scale businesses cannot afford large premises or commercial facilities and all they need is just a little space.
And if your land is situated in a commercial area you may consider using it as a private car park for individuals and companies. You may be surprised at how much you’ll earn monthly.
I know a man who owns two plots of land close to a commercial area of Lagos. When the government decided to clean up the area several street traders relocated to his property and started a mini market there. His monthly rental charge was quite significant.
His risk was minimal since they were ‘daily tenants’, who pay monthly, kept their wares elsewhere and could be easily barred from entering the premises if they fail to pay.
In another part of Lagos Nigeria, along a particular stretch of road where a lot of banks were located another individual who had an empty plot of land decided to lease it to the bank who found it appropriate to use as a parking space exclusively for its staff and thereby freeing more parking spaces for their customers.
Prior to the days of co-location in the telecommunication industry in Nigeria, some people leased their undeveloped land or used part of their property for a reasonable fee paid in advance to telecommunication companies for setting up base stations.
A shrewd investor who was approached by one of the telecommunications company leased a portion of her land for a period of five years without a renewal clause and with a written agreement with the company to restore her land back to its former state after the expiration of their term. She made good money and also had her land back at the end of the term.
When doing this you need to ensure that you make a projection as to when you’ll need your property back and ensure that you have a clear agreement in place. The term should be certain and there should be no renewal clause except you intend to.
The idea behind all these is to inspire you to be more creative in your use of idle assets. The list of what could be done with an undeveloped parcel of land is endless but you can generate ideas by driving around the area where your land is located, analyzing their needs and making enquiries or exploring solutions.
Oftentimes, all you need to do is to copy an idea that is being used in another area and using it in an area where it is not presently being used.

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