This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
The improvement and financing of land where buildings are demolished and new ones erected are the same as those of vacant land and will be taken up later.
The operator in vacant land has the hardest row to plow. His capital is invested with no return until the property is improved and rented; not only has he no income, but in addition, he has the carrying charges, taxes and interest, and sometimes assessments, increasing his cost daily. How this amounts up can best be realized by actual figures. Take a plot worth $100,000, mortgaged for $60,000 at 5%:
Interest on mortgage, per annum...........
Interest on capital invested, $40,000, at 6% per annum...........................
Taxes at 1.70 ......................................
This amounts to $7,100 per annum, or about $19.50 per day, or 80 cents every hour of the day, not allowing anything for assessments, while he is waking or sleeping, and this increases or decreases in proportion to the value of the land.
In purchasing vacant land it is important therefore that one consider these carrying charges, for in case the property is not sold quickly the growth and future value of it should be sufficient to show a profit over and above the cost and carrying charges. In addition, the operator should know for what class of improvement the property is suitable, and how it could be financed should building be commenced.