From the desk:Land Banking (Buy and Hold)

Talk me out of calling half my new crew yard a land bank

Our storage yard lease runs out in March. We are paying $1,450 a month for a fenced half acre with a container and gravel, and the landlord has already floated $1,700. Over ten years that is somewhere around $200,000 of rent for dirt.

What I found: 6.2 acres on the outside edge of town, $18,000 an acre, $111,600. Zoned in a category that allows contractor storage as of right per the planning tech I spoke to, though I have asked for that in writing and have not got it yet. Frontage on a state route that the state DOT's long range plan shows widening, no funded date. Taxes last year $2,900.

The plan is to use about 1.5 acres as the yard, fence it, gravel it, drop the container, and sit on the other 4.7 acres for as long as it takes. Rough numbers from our own crews: clearing and grading 1.5 acres plus fence and gravel comes in around $46,000 to $58,000 depending on how much rock we hit. Call it $55,000. So all in near $167,000 against $17,400 a year of rent I stop paying, which pencils fine on the yard alone if I ignore financing.

Where I am stuck. The yard half I understand, it replaces a real expense. The 4.7 acres is a straight appreciation bet and I have never made one of those. I would be putting $85,000 of business capital into something that produces nothing and cannot be liquidated in a bad quarter, and my business has bad quarters. My bank has been vague about what they will lend on unimproved acreage attached to an owner-user parcel, so the structure is not settled either.

Do I buy the 6.2 and hold the back, or find a 2 acre parcel and keep the capital liquid?

Answer

3joe_delgado5AP4CPRO6

The yard math is good and the back 4.7 is you talking yourself into an extra $85,000 because the seller will not split it.

Ask him directly. A lot of sellers on 6 acres will sell you 2 with frontage if the remainder is still usable, and if he says no, that is information about how badly he wants out. Also check the minimum lot size and whether a split needs a survey and a plat, because that timeline can blow past your March lease expiration and then you are month to month at $1,700 with no leverage.

My real objection is the liquidity line in your own post. You said the business has bad quarters. Land is the single worst asset to own going into a bad quarter, because the buyer pool for raw acreage is thin and you will be selling at exactly the moment you cannot wait 300 days for a listing to move. Everything about land banking assumes the holder never has to sell on someone else's schedule. You just told us you might.

2 replies

1gregpowell66AG4BPRO8

Your $46,000 to $58,000 clearing and grading spread is doing a lot of work and I would widen it. Rock is the obvious one. The one that gets people is stormwater. Putting 1.5 acres of gravel and roof down on a raw parcel usually trips a land disturbance threshold and once you are over it you are into a detention basin, an engineer's stamp, and inspections. Thresholds and what triggers them vary by state and by the local jurisdiction, so ask the county engineer, not the planning tech, and get that in writing along with the use question.

Even so, I would not dismiss the back 4.7 the way @flint does. You are on a state route with a widening in the long range plan and you are buying the whole thing at $18,000 an acre, which is a yard price rather than a commercial frontage price. Widened road frontage on the edge of a growing town is the specific kind of change that reprices land. No funded date means it could be twenty years, and you should assume twenty rather than eight.

The version I would consider is buying the 6.2, and keeping the back acreage in a form you can hand off separately later. Talk to an attorney in your state about how you hold it and whether a future split is clean, because untangling it once your business improvements sit on the front is harder than setting it up right at closing.