Land Use And Investment: Key Concepts For Success

Land use is a broad term that refers to the utilisation of land by humans for various purposes, including residential, commercial, industrial, recreational, agricultural, and transportation activities. It involves managing the land and its natural resources, such as water, soil, plants, and animals, to derive benefits. Land use planning, often done by governments, aims to regulate land use efficiently and ethically, promoting desirable social and environmental outcomes while minimising negative impacts.

Land investment, on the other hand, involves purchasing land with the intention of developing it or using it for specific purposes. Investors may buy land for personal use, recreation, or as a long-term asset, considering factors like location, climate, size, natural resources, and potential income returns.

Together, land use and investment involve a range of considerations, from the environmental and social impacts of human activities to the financial and legal aspects of land ownership and development.

Land ownership and transfer

Classification of Property

Property is divided into two classes: real property and personal property. Real property consists of the land, the airspace above the surface, and the subsurface. It includes a range of interests associated with the surface of the land, such as water rights, timber harvesting rights, leases, and easement rights. Personal property, on the other hand, refers to everything that is not real property, such as cash, equipment, livestock, vehicles, and intangible assets like contracts, patents, and trademarks.

Documentation of Ownership

The manner of acquiring, possessing, and disposing of property depends on its classification. For real property, all legally enforceable transfers and interests must be evidenced in writing, as per the Statute of Frauds. Deeds to real property must be recorded in the relevant county to establish a claim. This helps secure rights and provide a public record for establishing ownership. Personal property ownership, on the other hand, is typically documented through statutes, transaction documentation, or personal records.

Forms of Ownership

There are various forms of ownership that impact the rights and responsibilities associated with the property. These include:

• Sole ownership: The simplest form where one person has all present and future rights to use, control, sell, or dispose of the property.
• Concurrent interests: Multiple individuals inherit or own the property simultaneously. This can take the form of tenancy in common, joint tenancy with right of survivorship, or tenancy by the entirety (for married couples).
• Life estate: A transfer of title to real property that takes effect at the death of the grantor, with the life tenant having the right to use and possess the property during their lifetime.

Transfer of Land

The transfer of land can occur through gift or sale during the owner's lifetime, or upon their death through a will (testacy) or without a will (intestate). When transferring land, it is important to consider factors such as management, risks, stability, growth, personal and business goals, and formality of the transaction. The method of transfer can vary, including lease, sale, or gift, and may be influenced by the business structure and tax implications.

Land valuation

Factors Affecting Land Valuation

There are several factors that can influence the valuation of a piece of land. These include:

• Location: Proximity to a city, public transportation, healthcare facilities, schools, supermarkets, and other businesses can increase the appeal and valuation of the land.
• Climate: The suitability of the climate for various purposes, such as agriculture or outdoor recreation, can impact the land's value.
• Size: Larger parcels of land may be more valuable, especially for development purposes.
• Condition: The current state of the land, including any environmental contamination or natural disasters that have occurred, can affect its value.
• Physical structures: Buildings, roads, or other improvements on the land can increase its value, depending on their condition and suitability for the intended use of the land.
• Natural resources: The presence of natural resources such as water, minerals, or oil within the boundaries of the land can significantly increase its value. This is particularly true for resources that are scarce or being depleted, such as natural gas and oil.
• Zoning and regulations: The zoning designation and local regulations governing the land can impact its value, as they dictate the allowable uses and development potential.
• Access to utilities: The availability of basic utilities like electricity and telecommunications can affect the value of the land, especially for residential or commercial development.
• Property taxes: High property taxes may impact the finances of prospective landowners and, therefore, the value of the land.
• Trespassing risks: The potential for trespassing or security issues on the property can influence its value, especially for remote or less accessible parcels of land.

Methods of Land Valuation

There are several methods commonly used to determine the value of land:

• Sales Comparison Approach: This method involves comparing the subject property to similar properties that have recently been sold in the same market. Adjustments are made to account for differences in characteristics such as location, age, condition, and features. This approach is commonly used for valuing single-family homes and land.
• Cost Approach: This method is often used for improved properties with buildings or other structures. It involves estimating the value of the land as if it were vacant and then adding the depreciated cost of the improvements to determine the total property value.
• Income Capitalization Approach: This method is relevant for valuing income-producing properties, such as apartment complexes, office buildings, or shopping centers. It considers the net operating income generated by the property and the rate of return an investor requires, to estimate the value.

Accurate land valuation is essential for various financial activities, including real estate transactions, local government taxes, and property investments. It provides confidence to buyers and sellers and helps landowners make informed decisions about the use and monetization of their land.

Land development

Zoning

Zoning is the classification of land into districts by the legislative action of the local governing authority. Regulations are established for each zoning district regarding building and structure designs and placement, and the permitted uses of the land, buildings and structures. These regulations are specified in the local jurisdiction's zoning ordinance. The zoning ordinance may also provide for additional compatible uses, subject to the approval of the local authority. This is known as a special use, special exception or conditional use.

A property owner may either develop their property in accordance with the approved zoning or may choose to pursue a rezoning of the property. Rezoning applications are usually made for a more intense use, in order to make the property more profitable or marketable.

Subdivision

A subdivision may be described as the division of a parcel of land into two or more parcels. Provisions for subdividing property are covered in a locality's subdivision ordinance and are administered and enforced by the governing body, generally through its planning commission. Land may be subdivided for many reasons, such as improving its marketability, increasing its development potential or allowing for the transfer of property to family members.

Site Plan

The site plan provides the details of improvements to be made to a parcel of land. Site plan review is a ministerial process of the local governing body. Larger, more developed localities often have specific construction standards, which are described in a construction or facilities manual. These standards are often defined to exceed minimum state requirements in order to address the specific needs of the locality.

Permitting

Once an applicant has received all necessary approvals and is ready to begin construction, they need to obtain permits. Depending on the nature of the work to be done, permits may be required by local, state or federal authorities. In Virginia, for example, all work on, or connecting to, the system of state highways requires a land use permit issued by the Virginia Department of Transportation.

Environmental Impact of Land Development

Alteration of Terrain (AoT) permitting helps regulate stormwater control and treatment on larger sites. It helps govern "earth-moving" operations, such as gravel pits, as well as industrial, commercial and residential construction. Treatment options can be biological or physical, and management methods include rain gardens, infiltration ponds, gravel wetlands and other best management practices.

In the United States, approximately one-third of land area is grazed by domestic livestock, and nearly all of this land is also used by big game animals. The effects of grazing on wildlife may be direct and obvious, or indirect and inconspicuous. Progressive alteration of the composition, stocking, and vigor of the range plant community results from continued livestock use.

The planning and construction of new highways and transportation improvements affect existing land uses and plans for future development. Types and patterns of development influence and impact travel patterns and demand for transportation facilities. Coordination between transportation and land-use planning is essential for ensuring mobility.

Land use planning and regulation

Land use planning is a critical aspect of managing the development and utilization of land resources. It involves the systematic assessment and decision-making process regarding how land should be used and developed to meet various economic, social, and environmental objectives. Land use planning aims to allocate space for different purposes, such as residential, commercial, industrial, agricultural, recreational, and conservation areas. The primary objective is to ensure that land is used efficiently, sustainably, and in a manner that aligns with the needs and goals of the community.

The process of land use planning typically involves several key steps. Firstly, it begins with an analysis of the current land use patterns and trends, taking into account factors such as population growth, economic development, infrastructure, and environmental considerations. This includes evaluating the carrying capacity of the land and identifying any potential constraints or opportunities for development. Secondly, stakeholders' needs and priorities are identified through community engagement and consultation processes. This ensures that the plans reflect the aspirations and concerns of the local community and other interested parties, such as developers, businesses, and environmental groups.

The next step involves formulating land use policies and strategies that guide decision-making. These policies consider the physical, social, and economic characteristics of the area and aim to balance competing interests and objectives. They may include guidelines on zoning, density, infrastructure provision, environmental protection, and heritage conservation, among others. Once the policies are in place, the planning authority or relevant government body prepares a land use plan or framework, which outlines the proposed uses for different areas. This plan specifies the permitted land uses, development intensities, and any restrictions or conditions that need to be adhered to.

Regulating land use is essential to ensure that the plans are implemented effectively and to manage potential conflicts. Land use regulations are typically enforced through zoning laws, building codes, environmental impact assessments, and other regulatory mechanisms. Zoning regulations divide the land into specific zones or districts, each with its own set of permitted uses and development standards, such as height limits, lot sizes, and setback requirements. Building codes ensure that structures are safe, healthy, and comply with construction standards, while environmental impact assessments identify and mitigate potential negative consequences of development projects on the natural environment.

Land investment options

Firstly, it is important to note that investing in land is often considered less risky than other forms of investment. This is because land is a finite resource and, as there is a limited amount available, the price will continue to rise. Land can also be a good investment as it does not come with the usual hassles of other types of real estate, such as construction, repairs, and tenants.

There are several types of land investment opportunities, including:

• Residential and Commercial Development Land: This is a feasible option for investors as there are an unlimited number of development opportunities that can be structured to meet an investor's capital and time constraints. However, this type of investment does not allow the landowner to enjoy the land themselves.
• Row Crop Land and Land for Livestock Operations: This type of investment can be very large-scale and financially risky, requiring a significant upfront capital outlay and ongoing high costs.
• Mineral Production Land: Mineral development lands are considered a good investment option, as they can be tailored to an investor's capital constraints and have the potential to generate an ongoing income stream.
• Vineyards and Orchards: Farmland investing can refer to areas used predominantly for vineyards and orchards, and these can be a good investment option.
• Recreational Land: Using raw land for recreational purposes, such as a weekend getaway spot or a community garden, can be a good long-term investment. It provides the opportunity to earn income while also using the land for entertainment.
• Transportation Land: As transportation development projects are essential and will never stop, investing in transportation land is considered a lucrative opportunity with substantial appreciation value over time.
• Subdivision Development: This involves purchasing a large piece of land and then subdividing it to build multiple houses, adding value to the land.
• Commercial Development: Converting raw land into a warehouse, factory, or shopping complex can be a good investment option, providing multiple sources of income.

It is important for investors to consider various factors when evaluating a potential land investment, such as utilities available, access to neighbouring areas, zoning laws, safety hazards, and soil quality.

Additionally, there are different approaches to raw land investment strategies, including:

• Flipping the land by buying it below market value and then selling it at or above market value.
• Buying the land and holding it, anticipating that the area will become more popular and the land will appreciate in value.
• Buying, developing, and holding the land by building on it and then renting it out.
• Buying, cultivating, and holding the land, which involves using the land itself rather than building on it.
• Buying, going through the entitlement process, and selling the land once it has been zoned for a specific use.
• Buying, developing, and selling the land to an end-user.

Overall, investing in land can be a smart decision as it is a tangible asset that can generate profit over time, and it is easy to acquire and maintain.

Frequently asked questions