Five Ways To Derive Income From Vacant Land

Owners of raw or vacant land are often faced with the decision to keep or sell the property in order to draw some type of value from it.  While vacant land doesn’t usually provide any income, it certainly generates costs such as property taxes, weed abatement, security fencing and other expenses.  If our land is well-located we could certainly sell it, but what if we want to keep that land?  Perhaps it’s land that’s been in the family for generations and there are strong emotional ties to it.  Maybe the land is on a community growth path that is likely to substantially increase the land’s value – but not for another 10 to 15 years.

Here are five ways to derive income from vacant land with only minor investment while retaining ownership.

1.    Seasonal Lease.  Many organizations and businesses lease land on a recurring seasonal basis for activities such as pumpkin farms, Christmas tree farms, summer camps, day camps, retreats, and other outdoor activities.  With the right zoning, permits, and minor structural accommodations, it may be possible to lease our vacant land in a manner similar to a vacation condo.

2.    Agricultural Lease.  If our land has the right soil, sunlight, and other factors conducive to growing small root crops (not trees), we may find farmers willing to work the land for a number of years without greatly altering the surface or adding structures that might have to be removed later.

3.    Lease for Retail/Office.  If we have no plans for the long term use of our land, we can derive income from it with a land lease entered into with someone desiring the location for retail, office or other purposes.  Most will want a lease equal to or greater than the economic life of the structure they intend to build, typically 30 to 40 years.

4.    Golf Courses.  Many private golf course developers and municipal golf courses obtain the underlying land for their course on a long term lease.  These leases are usually conditioned on use of the property as a golf course, thus ensuring the course operator can’t re-purpose the land during the lease period.  For example, the land on which sits Torrey Pines Municipal Golf Course in San Diego, California, home of an annual PGA TOUR^® event and recent host of the US Open Golf Championship, is leased to the City under the condition that it be used solely as a public golf course primarily for the benefit of City residents.  If the City were to use the land for any other purpose, the family who owns the land can cancel the lease immediately.

5.    Government Facilities.  State, county and city governments often lease land to reduce their capital expenditures, typically for government offices, maintenance facilities, and schools.  For example, many of the public schools in Palo Alto, California are set on land leased from the Stanford Trust (same organization that owns Stanford University).

These are just a few examples of how we can derive income from land while maintaining ownership.  When offering our land for short or long term leases, we will do our homework up-front regarding potential operating costs, zoning, permitting, insurance, and other risks and issues that could arise from leasing activities.  A team of real estate, legal, and tax specialists will need to assist us in finding the right tenant and creating the best lease terms.

Please comment where you’ve read this article or drop me a line in you have any questions regarding sale or lease of California lots and land.  John@jsrealproperty.com

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John A. Souerbry & Associates (DRE 01370983)