How to Avoid Disasters to Your Raw Land Investment

Most investors think that owning raw land comes with fewer management headaches than owning income-producing property. This thinking is not only wrong, but dangerous. Complacency on the part of raw land owners can lead to very expensive problems such as:

1) High Tensions. Have you ever heard of the Arizona Power Plant and Transmission Line Siting Committee? It is a committee the legislature created pursuant to A.R.S. Section 40-360 to determine where new high voltage, high tension overhead power lines and power plants will be installed. More than one landowner has been brought to tears after learning that a power line was going to be erected over the middle of their property.

2) Where Will The Road Go? Future roadway locations are constantly realigned, which can significantly impact the value of your property. The value of your property increases if the realignment brings the road to your property, providing greater access. The value decreases if the road is moved away from your property, depriving you of access. In addition, your property’s value could also decrease if the road is moved to bisect your property, and neither of the two remaining parcels is large enough for your commercial development. For the latter, you may be compensated for the governmental taking, including the value of the property taken and for the reduced value of your remaining property, but it will likely not approximate the profits you would have received from a successful development.

3) Roads That Are Never Created. Even worse than a poor realignment of a road is when the government slates a new road to go through the middle of your property but then never funds the road. This scenario could leave you unable to use or sell the property.

4) General Plans Changes And Downzonings. The saying goes, "no citizen's wallet is safe while the legislature is in session." It might also be said that "no property owner is safe while the city council is in session." Most people think that once their property is zoned, it cannot be rezoned by the city without compensation to the landowner. This is not true. A city can rezone your property at any time prior to commencement of construction. The City of Mesa recently changed its general plan and then proceeded to rezone a number of parcels to take away their multifamily zoning designations, all without compensating the property owners for the reduction in values of their properties.

5) Improper Infrastructure. Plan for proper infrastructure before it is too late. One unprepared property owner faced the possibility of being unable to obtain water or sewer lines to his property upon construction of a freeway near his property which left it landlocked between a mountain and the freeway. Had he been proactive and installed a water and sewer line under the freeway before it was built, he would be the owner of a very valuable – instead of worthless – piece of property.

6) Annexations. Development and impact fees can vary greatly between municipalities. As a result, whether your property is ultimately annexed into a particular municipality can have a significant impact on the value of the property. Strip annexations can have a similar result. Another example of how annexation can affect your property’s value is that annexation into a city may mean that you can no longer use septic for your development and may potentially be required to bring in more costly sewer service.

7) ID’s and CFD’s. Improvement Districts (ID’s) and Community Facilities Districts (CFD’s) can be a boon for development, or, conversely, could be very costly. ID’s act as a lien against your property to secure bonds issued to finance infrastructure. CFD’s create a special taxing district to repay bonds issued for infrastructure. Be aware of which ID’s and CFD’s are good or bad for your property.

Here’s how to protect your raw land against these and other problems:

• Visit your city or county planning and zoning department once or twice a year to find out what is happening that could affect your property.

• Hire a good broker who specializes in the area of your property and ask him to monitor and advise you of situations which could affect your property. At any given time, the broker will usually know what is negatively or positively impacting your property.

• Consult your attorney quickly when problems are identified, and do not wait until the damage cannot be rectified.

In a nutshell: Be aware. Be proactive. Avoid complacency.