The ‘Un-Built Building’ Formula
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I was thinking recently about the old formulas and how some of them are timeless. In reviewing the formulas, I realized that our G5 team (G5 Enterprises, Inc.) has been acquiring properties for the past few years based on someone else using the “Un-built Building” formula. Here is the formula.
Un-built Building
If a building lot won’t move, take the next step or two, i. e.: engineering, building permits, tentative maps, architectural studies, etc. Then move the “project” out as an improved property, or subdivision “to be built” on the lot.
Some look at an empty lot and see an expanse of dirt and weeds. Others look at the same lot and visualize a beautiful building. It is difficult to “sell” a vacant lot to those who cannot fully comprehend its potential and lack the ability to visualize the developed property. For those who lack the ability to imagine what the future of a barren piece of land might be, consider becoming the architectural visionary for them. “Place” an ideal building on the lot, in conceptual form only. Have the building professionally designed, complete with landscaping and an artist’s rendering. Now, you can show potential buyers how the finished product will look, thereby making the land easier to sell.
If this process is extended as far as receiving governmental approval of the project, it will also remove some of the uncertainty in developing the property. Since buyers hate uncertainty, this should certainly enhance the property’s marketability.
We at G5 have been buying development properties based in great part on the fact that all or a major part of the questions have been answered by the current owner. The owners have an approved map, preliminary building plans, and the required approvals from the community. We realize that we are paying considerably higher prices for the land than if we were to buy the property “next door” and complete these tasks ourselves. We are willing to pay more precisely because our questions have already been answered.
Why does it work with us? We syndicate development projects, and when you are using someone else’s money at high rates, we simply don’t have the luxury of the time that it takes for early-stage development. In order to assure ourselves and our investors of the merits of a project, we need to be able to perform cost estimates, verify entitlements, and be confident that we can move forward with minimal time delays. This cannot be accomplished with any degree of accuracy on a piece of raw land with no plans, with unknown City requirements, with unknown environmental issues, and with other unanswered questions.
Most owners will not wait for us to perform these tasks before we commit to the property. Therefore, by necessity, we gravitate to those properties that have final approvals.
We just started a new project developing homes in the Palm Springs area. The plans for the homes and the subdivision map were processed by a group that had purchased the land only a few years ago. They then sold it to us at a very nice profit. Their profit in the land is the result of using the Un-built Building formula. We acquired with all of the entitlements in place and were able to break ground upon close of escrow. It worked for them and it works for us.
These same investors own the property next door. We have tentative plans to later purchase or joint venture that property because they have started processing a map on the property. In fact, we even had some significant input into the design of their new subdivision.
Recently, we were able to put a property under option that had most of the preconstruction development work completed. Shortly after obtaining the option, someone approached us with a stronger desire to build the project than we possessed. They were willing to pay a price higher than our option price, so we sold them our position in the option. Like us, they recognized the value of having the entitlements in place. As a result, we made a profit without ever owning the property. Again, it was because someone had taken the property to the next level.
Now, we are beginning to acquire property that has no plans or entitlements and take it to the next level ourselves. These projects are time consuming and have a level of risk that we are uncomfortable syndicating. Therefore, we are using our own funds, rather than investor funds, to acquire these projects. We expect to win some and lose some, but when we win, we anticipate significant profits.
If you own or if you are marketing vacant land, why not increase its value and marketability and take it to the next level by using the Un-built Building formula?
