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A Money-Making Idea for Subdividing Farms for Profit

by Jeremy Kruer   

I don't know how popular this idea is or if it has been discussed before--or if it would even work in other areas of the country. However, I do have an idea for making money in rural areas.

I live in a rural area, and an excellent way of making money is buying large farms and dividing them up into smaller tracts. I'm not talking about developing subdivisions or anything like that. I am talking about taking twenty 100+-acre farms and dividing them up into tracts of land from 5 acres and up.

Where I live, when a farm is divided, the smallest it can be divided into is 5-acre tracts unless you go through the expense of installing a private sewer system. These private sewer systems are usually cost prohibitive, so the best option is to keep the tracts in 5 acres or larger.

These 5-acre tracts are very desirable because people want to get away from having neighbors, but don't want to have to maintain or pay for a HUGE tract of land. The trick to all this is knowing the local zoning laws.

Where I live, a 5 or 10-acre tract of land must have at least 250 feet of road frontage and a 11-acre or larger tract only needs 100 feet of road frontage. There are also restrictions on getting entrances on these tracts.

There must be a certain sight distance from any entrance. This prevents a car from taking a curve and smacking into someone trying to pull into his driveway. However, it also limits how many tracts you can get because if the sight distance isn't there, then you can't put a tract there.

How it all works...

Ok, enough of the technical/legal stuff. Lets get down to how it works. Where I live, a large tract of land will go for somewhere between $5,000 to $8,000 per acre depending on size, location, quality of land, etc. However a smaller, 5-acre tract will routinely go for between $10,000 to $12,000 per acre.

In an ideal situation you would be able to purchase a 100-acre farm with a whole lot of road frontage on a straight road. (You would probably pay about $7,000 to $8,000 per acre for something like this.) Then you divide that 100-acre farm up into 20 tracts that are 5 acres each and sell them for $11,000/acre.

This of course doesn't usually happen because you are typically limited by either road frontage or sight distance. However, in this ideal scenario it would play out something like this.

Purchase Price - $750,000
Surveying/Zoning Costs - $20,000
Sales Price - $1,100,000
Commission - $66,000
Profit - $264,000 (35%)

As I mentioned you can almost never divide an entire farm up into nothing but 5-acre tracts. However, when looking at a farm, what you want to do is get as many 5-acre tracts as possible--because this is where you make your money, and then divide the remaining land into the smallest tracts possible.

A real life example

A 151-acre farm was purchased for $1,000,000. It was divided into (8) 5-acre tracts, (1) 25-acre tract, (1) 32-acre tract, and (1) 54-acre tract. The survey and zoning costs were about $17,000, and it was sold for just over $1,200,000 for a nice profit.

This works best in rural areas that are just outside of major metropolitan areas. People from the city want to get out of the city and move to the country, but still be close to the conveniences of the city. I'm sure it would also work in more rural areas than this, but the results would probably not be as good.

The beauty of this type of investing is most people don't know about it, so there isn't a lot of competition, and you also don't have to find under-priced properties. Larger tracts of land are simply worth less per acre than smaller tracts of land are.

The trick is finding a property that has enough road frontage and sight distance to get as many 5-acre tracts as possible out of it. Of course, if you can find a large farm that is good for splitting up, and you can purchase it at a discount, then your profits will go through the roof!

 
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