While this may seem harsh, if you do not have access to lots, you are not a builder. I can speak to this from experience. Most of my buyers do not have a lot and will build with the builder that has the lot they want.
Unless you are fortunate enough to do only custom work on lots your customer has procured, you will eventually be asked by a buyer, “what lots to you have for me to choose from”?
If you are a small builder, chances are you have difficulty buying lots on the open market. This is especially true in a strengthening market like the one we find ourselves in today. If you are lucky enough to buy lots from local developers they may well be B-level lots, or leftovers, perhaps irregular lots with easement issues or corners on high traffic roads or in locations with long commutes.
The following are 5 strategies I’ve used to secure lots time and time again.
1. Work with a broker
I spoke in my last article about relationships with local brokers. If you were to obtain your real estate license you could endear yourself to many brokers in the area, even if you want to maintain your independence and not “hang your shingle” with any one real estate firm. If you do align yourself with a specific broker, look for one with a development company, or access to a development company. The relationship your forge with a developer/broker allows you to gain access to lots that you otherwise could be locked out of. If you build speculation homes, you could offer to list each one with your broker to strengthen the bond and forge that relationship. I have done this and even gone as far as offering the in-house agents my side of the transaction commission if the home sells in-house. This provides incentive to the agents to target your homes as their primary offering. It gives the broker both sides of the transaction and further builds trust. When you ask to buy lots from him or her next time, you may have access where you didn’t before, or may get a better selection of A-level lots instead of B-level lots.
2. Pick up B-level lots
Speaking of B-level lots, pick up a limited number of them as well. Sometimes they can be used to trade when a particular buyer prefers them to an A-level offering. Sometimes buyers want to live by railroad tracks, busy streets, pie shaped lots or other things you can’t anticipate.
3. Buy in bulk
If your bank gives you a line of credit for lots, try to make sure it is large enough where you can buy more than one lot at a time from your developer. Volume makes a difference in price and availability. Also, try to buy in the off season. Sometimes a purchase of 3 lots in December may look pretty appealing to a developer that wants to start a new addition in the spring. This, of course, is written for my associates working in cold off-season weather.
4. Talk with developers
How about asking the developers in your area if you could commit to lot sales with a non-refundable deposit? What about buying lots while the subdivision is on the drawing board. This helps the developer in a number of ways. Do you have other builders that you think complement, but not compete, with your price point or style? This could be a way to combine your money to buy a block of lots from a developer.
5. Buy when the local economy is slow
Lastly, and I hope this suggestion will never find a place in your business cycle, buy when the local economy is slow. Land takes more builders/developers down than anything else. It isn’t like a spec that can be marked down or rented. It is extremely capital intensive, has property taxes that never stop and normally can’t have productive use during a downturn. If you find your market in this situation try Warren Buffet’s advice and “run into a burning building”. Cash is king in a depressed market and business always cycles.