Hey @shaneil83!
Sorry, I somehow missed the second part of your question there.
…what’s the best way to generate cash flow from land investing? I.e. Developing a mobile home park, applying modular homes for rent, or so on.
So what would your thoughts be on scaling up to bigger owner financed land deals such as agricultural space for farmers? Do you think you could be in a more passive space if you found developed land to finance to a mobile home investor, maybe even cell phone towers?
For me, developing a mobile home park, applying modular homes for rent, or offering owner financing on land for farmers are all very unique from one another.
All of them produce some form of cash flow but each one you mentioned requires a totally different business model and system to facilitate.
Development of any kind is not really passive. The logistics of going back and forth with the city and county alone can be a huge time commitment.
Renting out modular homes, or selling modular homes via seller financing can both work… but as I mentioned in my previous comment, they’re similar to renting out a single family - they’re hard to scale with.
When it comes to leasing out land to farmers - in theory this is as passive as it gets.
Farm land is essentially what they call a triple net property, where the tenants cover all the cost of the property like maintenance, taxes and so on.
In a traditional triple net property, often your tenants are big chain stores like Lowe’s, TacoBell, Walmart etc. and they’ll sign up to 15-30 year leases with you.
With triple net, as long as a tenant is in place the owner literally does nothing except collect a check, which is pretty hard to beat.
The risk though, is that triple net properties typically have really expensive holding costs, so if you have a vacancy on your hands you can be losing a lot of money every month.
The other major factor is how good the location is of the property. If the triple net property doesn’t have a good location it will be hard to find a tenant.
I feel like leasing farm land has a leg up on traditional triple net investing because good farm land is always in demand and a lot less expensive to hold in light of a vacancy.
As long as you can get a property with enough acreage that professional farmers can use it, farm land can be a fantastic asset.
The issue though, is getting farm land cheap enough where the cash flow makes sense.
Normally farm land is very expensive and it’s hard to find motivated sellers who will let go of their property to an “outsider”.
Farming communities are very tight knit, and they normally keep land within the family or close friends.
If you can figure out how to get farm land at a great price it’d be a great asset, but it may be hard to do so.
I don’t know enough about cell phone towers or windmills to commit on those.
I will add a little note about billboards though - billboards can be a great passive income strategy!
There are a number of ways you can use them but the most passive is to simply lease out a portion of your property to billboard companies who will pay you each month to use your land to put a billboard on.
Some of these can pay out big money, depending on how many people can see the ad from the road, and the billboard company will service the sign and do everything, so it’s truly passive for the owner.
The issue here is that, there are a lot of restrictions to adding a new billboard on a property (some counties have it where if a new one goes up, and old one has to go down). In some markets it can be a nightmare and almost impossible to accomplish.
You could buy a property that already has a billboard on it… but it will likely be expensive because billboards are such a great passive cash flowing asset.
Wrapping this all up though, you asked me what I believe is the best way to generate cash flow from land investing.
I think it depends on your goals and I think it ultimately depends on what you define as passive.
Selling residential vacant land via seller financing provides some of the best returns and cash flow in all of real estate.
But it does require a certain level of activity to facilitate which to me, defies the definition of passive.
To answer your question directly, I would stick by my original comment about being a passive investor.
If you have the capital and you can fund deals for active land investors who know what they’re doing… in land flipping, it’s pretty common practice for the financial partner to make 50% of the profit!
All that’s involved is building relationships and vetting active land investors to ensure they’re competent, and if they are, all you do is just wire money.
That’s it… and you likely make 50% of the profit.
Sounds like the best of what’s out there to me!
These can be terms deals or cash deals by the way, so you can still get month to month cash flow by funding seller financing notes but you won’t have the headache of being the operator.
The returns in land flipping are the best I’ve found.
It’s common for deals to yield 100% ROI or greater- it’s hard to beat, and if you were to be a passive money partner involved in those deals, you’d reap all the benefits but wouldn’t have to do any of the work.
It’s truly passive.
If you have a solid process to ensure the land operator knows their stuff and that you’ll be protected if things go south… to me it doesn’t get much better than that.
Now there is money to be made passively funding mobile home developers, apartment syndications and a number of other strategies… but it’s only in land that I’ve seen a 50/50 split.
That’s why I think its probably the best.
@shaneil83 said in What Is The BEST Real Estate Strategy?:
Also, what’s the best way to generate cash flow from land investing? I.e. Developing a mobile home park, applying modular homes for rent, or so on.
@shaneil83 said in What Is The BEST Real Estate Strategy?:
So what would your thoughts be on scaling up to bigger owner financed land deals such as agricultural space for farmers? Do you think you could be in a more passive space if you found developed land to finance to a mobile home investor, maybe even cell phone towers?