Alright, let’s get real for a minute here, folks. I know a lot of you landowners out there have probably been feeling the pinch lately. The real estate market has been a wild ride, and not always in a good way. Those sky-high property values we were seeing a couple of years ago? Yeah, those were the exception, not the rule. 

I’m not trying to be a Debbie Downer or anything, but we’ve got to face facts: real estate doesn’t just magically go up in value forever. Things like new technologies, and shifts in the economy – they can make certain properties pretty much obsolete overnight. And let’s not even get started on all the real estate “gurus” peddling their overpriced courses and get-rich-quick schemes since the pandemic. A lot of investors got suckered into overpaying for properties, and now they’re holding the bag.

Syndicators, developers – they’re all feeling the squeeze too. Those low interest rates are ancient history, and refinancing at today’s rates is a bitter pill to swallow. Cap rates have jumped through the roof, and suddenly those fancy pro formas aren’t looking so hot anymore. It’s a mess, I tell ya.

But here’s the thing: I’ve been talking to a lot of landowners lately, and it seems like many of them are still living in that 2021 fantasy world where their property is worth a fortune. News flash: those valuations are long gone, my friends. The value of land depends on a whole bunch of factors beyond just dreaming about that “highest and best use” scenario.

Understanding the Land Entitlement Process

Okay, okay, I can see some of you scratching your heads already. “Land entitlement? The heck is that?” Fair question! Let me break it down for you.

Basically, if you want to develop a piece of raw land, you need to go through this whole rigamarole of getting permits and approvals from the powers that be before you can even think about breaking ground. Drafting up site plans, engineering drawings, environmental studies – the whole nine yards. It’s a long, drawn-out process that differs from town to town, and it’s an absolute bureaucratic nightmare.

First, you’ve got your pre-submission meetings where you pitch your concept to the city planners and try not to get laughed out of the room. Then it’s a whirlwind of studies, due diligence, and lots of back-and-forth until you can submit your full site package for review. And even then, you’re probably looking at multiple rounds of revisions and resubmissions before anything gets approved.

Throw in all the other permits you need – erosion control, driveway access, land disturbance, you name it – and it’s enough to make your head spin. But once you’ve finally jumped through all those flaming hoops? Congratulations, your land is officially “entitled” and ready for development!

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Why Put Yourself Through That Nightmare? Let Me Explain…

I know, I know, you’re probably thinking: “Why the hell would I want to subject myself to that kind of torture?” Believe me, I get it. But hear me out, because there are actually some pretty compelling reasons why taking the land entitlement route might be worth considering.

For starters, let’s talk about your cost basis. Maybe you inherited this land from your great-aunt Edna, or you bought it back when properties were practically giving it away. If that’s the case, your initial investment is peanuts compared to what someone would have to pay for that same parcel today. That low cost basis gives you a ton of flexibility that developers simply don’t have.

See, you can go through the entitlement process yourself, get all those approvals squared away, and then sell that shovel-ready property to an eager buyer without having to charge an arm and a leg to recoup your costs. For builders and developers, that’s an enticing proposition – they get to skip the whole headache of entitlement and just start building. It’s a win-win, got it?

But wait, there’s more! As the current landowner, you’ve got another big advantage over developers: time. These guys are always on the clock, rushing to get projects approved so they can start making their money back. You, on the other hand, can take your sweet time wading through all that red tape. No carrying costs, no interest payments eating away at your profits – just good old-fashioned patience.

Feeling ambitious? You could even take it a step further and fully develop the land yourself before selling. I know, I know, that sounds like a crazy amount of work. But hear me out: there’s a huge market for pad-ready sites and fully developed lots, especially among smaller builders who don’t have their own land crews. If you’re willing to go the extra mile, the payoff could be enormous.

But Don’t Get Too Excited Yet – There Are Still Risks to Consider

Now, before you start drafting up those site plans and picking out curtains for your future mansion, let’s pump the brakes a little. Pursuing land entitlement isn’t exactly a walk in the park, and there are some serious risks to keep in mind.

Ensuring Market Demand

First off, you’ve got to make sure there’s actually a market for whatever kind of development you’re proposing. It’s all fine and dandy to go through the entitlement process, but if nobody wants to buy that retail complex or those luxury condos you’ve got planned, you’ve just wasted a ton of time and money.

Do your homework, folks. Study up on the local market dynamics, crunch those numbers, and make sure there’s demand for your project. Whether it’s residential properties, commercial spaces, or something else entirely, you’ve got to know what buyers are looking for and what they’re willing to pay.

Managing Entitlement Costs

Speaking of paying, let’s talk about those entitlement costs for a minute. We’re not just talking about fees for the city – you’re going to need to assemble a whole team of professionals to get this thing done right. Surveyors, engineers, architects, attorneys, consultants – they don’t work for free, my friends. Those costs can really start to add up, especially when the property isn’t generating any income during the entitlement process.

And let’s not forget about good old-fashioned construction realities. More density often means more profits, sure, but it also means more complexity and higher construction costs. Grading issues, stormwater management, retaining walls – it’s a delicate balancing act to make sure your project pencils out from a financial perspective.

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Conclusion

I know I’ve thrown a lot at you – permits, consultants, market analysis, construction costs…the land entitlement process is no cakewalk. But if you can successfully navigate those hurdles as a landowner, the potential rewards are huge.

You’re talking about capturing maximum value by delivering an entitled, shovel-ready property that developers will be lining up to buy. No more arguments over speculative pricing – you’ve de-risked it and added a premium.

And you can take your time, avoid crushing carrying costs, and play the long game that developers can’t. Done right, this could be a life-changing payday.

Sure, it’s a big undertaking with risks. But bringing in the right expertise, running the numbers, and taking a calculated entrepreneurial leap could turn your land into a goldmine. The biggest risks can lead to the biggest rewards in real estate.

So don’t just take that lowball offer. Weigh your options, including the road less traveled of land entitlement. The journey is tough, but the destination could be a total game-changer. Food for thought.

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