Pros and Cons of Selling to a New Mexico Land Company

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Pros and Cons of Selling to a New Mexico Land Company
By

Bart Waldon

New Mexico is a beautiful state located in the Southwestern United States, known for its diverse landscape including deserts, mountains, high plains, and scenic vistas. It has a rich history and culture, with Hispanic and Native American influences. The state has opportunities for landowners, with demand for real estate in picturesque areas as well as land that can be used for agriculture, solar and wind energy, oil and gas drilling, commercial development, mineral extraction, and more.

However, the private land sales market in New Mexico is complex, with lots of variables impacting value. Determining an accurate market price for your vacant property can be extremely difficult and time-consuming. And actually, closing a land sale through traditional listing methods with an agent typically takes between 1-2 years for most raw land plots. This is why some New Mexico landowners consider offers from local land companies and real estate investment firms that specialize in buying and selling land.

This in-depth article provides a thorough overview of key pros and cons to seriously weigh if you are considering selling your New Mexico land to a local land buyer or company. It aims to fully educate landowners to make an informed decision when comparing options and move forward strategically.

Key Reasons Landowners Consider Selling to a Local Firm

Before analyzing the major advantages and drawbacks, it’s helpful to understand why so many New Mexico landowners contemplate selling to a local land company in the first place despite the steep discounts offered.

Need Cash Fast 

Some families or individuals have suddenly found themselves in financial hardship, whether due to job loss, unforeseen medical bills, cost overruns on construction projects, unpaid tax bills accruing penalties, or other urgent money problems. They may own land free and clear but be cash-poor in terms of savings accounts. Local land buyers dangle quick cash relief via a fast closing. This tempts those in tight spots.

Tired of Paying Taxes & Fees 

For owners of vacant land they no longer use who have held it passively for investment purposes, the annual property taxes, use fees, maintenance bills, and tracking paperwork can become a headache. Selling to an investor brings relief from these nagging costs and duties.

Inherited Unwanted Land 

As land gets passed down over generations, eventually some heirs receive raw land they have zero personal interest in or plans to develop. Yet they now owe annual taxes on the land. Unburdening themselves by offloading to a company willing to take over the property becomes appealing.

Emigrating Out of State 

If a landowner is retiring, moving overseas, or relocating to another region, holding onto vacant rural land lacks appeal if they are no longer living within the state. The effort to remotely monitor and pay taxes on land from a different state or country feels like a waste. An absentee owner may prioritize divesting land they no longer have local ties to.

Have No Strategy to Develop Land 

Sometimes land seems like an asset until property owners realize they lack the expertise or capital to transform it into a revenue-producing investment via activities like farming, drilling oil wells, mining for minerals, building solar infrastructure, or constructing commercial buildings. If the acreage will just sit, owners open themselves up to offers.

Appeal of Hassle-Free Sales Process 

As we’ll explore shortly when reviewing major advantages, the simplified sales process offered by reputable local land buyers has immense appeal to owners tired of traditional real estate gauntlets.

Now that we understand the mindset of sellers who engage with land buying firms, let’s take a detailed look at notable pros and cons inherent to this route.

Key Benefits of Selling to a Local Land Company

Selling your land to a New Mexico-based real estate investment group or land development company can certainly provide some major advantages compared to listing it on the demanding open market if handled correctly.

Cash Offers and Rapid Closings

Reputable local land buying companies have the ability to buy with all-cash offers, which can successfully close escrow within a few weeks or a couple months in most cases. This provides immediate payoff and liquidity compared to the lengthy and labor-intensive process of prepping, listing, and marketing land which requires slowly waiting for bids to trickle in over months or years – all while still paying property taxes and land maintenance fees.

If you specifically need quick access to cash for personal reasons, or want to rapidly reinvest your equity into a new opportunity, this accelerated closing timeframe would clearly be highly beneficial. Land buying firms know speed and agility are what sellers desire. They will emphasize their ability to fund and finalize deals remarkably faster than the sluggish open market bogged down with contingencies and drawn-out financing processes.

Avoid Hassles and Headaches of Traditional Sales

Trying to sell raw vacant land on your own through listing on MLS or advertising sites, attempting to attract qualified buyers, hosting time-consuming property tours or open houses, fielding endless calls with curiosity seekers unlikely to purchase, and negotiating contingencies around utilities, zoning, mineral rights, property lines, Stage 1 environmental surveys, title transfers, easements and 100 other factors can quickly become an exhausting and frustrating process for land owners.

Additionally, if you list land through an agent, their commissions and fees get deducted from proceeds – while still saddling you with doing most of the heavy lifting regarding marketing and buyer interactions. However, selling directly to an established local land buyer dramatically simplifies the entire land sales process since they handle all acquisition due diligence internally and have standardized no-nonsense purchase agreements. Deeply discounted buys allow them healthy profit margins even after covering development costs the seller would otherwise bear themselves listing through traditional channels.

You also needn’t worry about resale intentions with a land buying firm since they have existing buyer networks, relationships with builders and developers, and may even improve/develop land for higher future values. Trying to find retail buyers on your own for raw land lacks appeals compared to offloading directly to a seasoned land dealer already immersed in that world.

No Commissions or Closing Costs

Savvy land buying companies know offering sellers maximum value and closing incentives sweetens deals getting them more seller interest and signature. These motivated buyers often cover all escrow and title transfer closing costs for you so the net proceeds check you ultimately receive is larger, with zero surprise deductions. There’s no need to fork over hefty agent commissions either on your sale. This allows you to maximize ROI and net proceeds from the transaction.

Mitigate Risk Exposure

There can also be tremendous relief transferring over any potential land ownership obligations, liability risks, or environmental hazards to an experienced land buying company with the expertise and appetite to absorb those exposures that may have given you migraines trying to navigate solo as an individual seller without deep pockets. For land with mineral rights, oil leasing potential, commercial development potential but also with pre-existing conditions around toxic waste, endangered species, access issues or excessive regulations... offloading to a capable buyer can free you from those problems that keep you up at night while still being compensated fairly in the deal.

Potential Drawbacks of Selling to a Land Company

Now that we have covered the primary advantages and payoffs, let’s closely examine the key potential drawbacks or tradeoffs to consider when deciding whether to sell land to a local real estate investment firm instead of via the open market.

Below Market Value Offers

The reality is local land buying companies need to initially acquire properties at substantial discounts averaging 30-50% below actual retail market value. This allowance gives them room to ultimately resell the land down the road at full market price and turn a reasonable profit after carrying costs. The net offer amount a land buying company can initially bring to the table will generally be below true current open market retail pricing.

You need to carefully run the numbers to decide if the convenience, speed, and ease of quickly offloading land justifies accepting a heavily reduced offer compared to slowly marketing the property independently through an agent or for-sale-by-owner over 6-12+ months to capture full open market value more in line with going rate comps.

On one hand, an immediate 30% payoff guaranteed by a land company within 45 days seems enticing and gives you liquid working capital freed up now to fuel other ventures versus waiting years crossing your fingers. But will you later regret leaving possibly hundreds of thousands in extra equity still achievable via the retail listing route? It’s a very personal decision requiring deep analysis.

Lost Potential for Future Rezoning Windfall

If your land acreage has appealing characteristics being suitable to get rezoned in the future for a more valuable high density or commercial intended use, a motivated land buying firm’s offer likely severely undervalues that mid-term or long-term rezoning upside potential. By offloading the property now to a simplified buyer focused on quick wholesale-priced flips, you lose out on possibly major windfall gains later down the road if the property successfully gets rezoned for residential development, industrial facilities, mixed use space or other premium land utilization models.

Again, this depends on your personal objectives, capabilities, time horizon and risk tolerance. But many land owners (or their heirs) regret prematurely dumping land at fire sale prices once news breaks a few years later that the formerly sleepy land site will now become a bustling master-planned community or economic boon. Savvy sellers may want to incorporate contingencies around profit sharing or equity interest on future sales based on rezoning milestones hit if opting to unload land to a local company sitting on the sidelines waiting to score properties with major near term upside.

Capital Gains and Tax Implications

If you sell investment land returning a profit over your original purchase price and basis, capital gains taxes at the prevailing federal and state rates will apply reducing your net proceeds. Depending on tax bracket, this erosion into upside can be sizable. Additionally, some states levy extra taxes when selling property deemed speculative in nature primarily intended to profit from rising land values over time rather than personally utilizing the acres.

A qualified tax attorney or CPA can help craft the transaction to maximize tax deferments, credits, installment structures, opportunity zone funding, 1031 exchanges or other tax savings vehicles where applicable. But the profits from a land sale to an investment firm will still get haircut by taxes in some form eventually. Modeling the after-tax results is crucial.

Surrender Sentimental Value

Some New Mexico land owners have deep emotional, generational and cultural connections to land belonging to their families for decades which symbolize beautiful memories they associate with the acres. Cashing out the property purely for financial gain may deprive these sellers of nostalgic sentimental value beyond physical land price valuation.

Not all land buying companies will appreciate the personal significance certain land holds for sellers based on legacy, special events, family heritage, and spiritual ties. Make sure to selectively screen and vet land buyers based on alignment with your story, intentions and affinity for the land’s history as well as their ability to pay. Finding the optimal blend of financial payoff combined with a buyer who sees land like you see it becomes essential for some land holders.

Expert Tips for Vetting and Negotiating with Local Land Buyers

If after weighing pros vs cons you decide the quick cash payout and convenience merits selling your New Mexico land to a local real estate investment company, focus on these pro tips when negotiating to smoothly transact with reputable land buyers:

  • Interview Multiple Acquirers - Thoroughly interview and compare an array of established local land buying firms to assess their true interest level in your property. Get a feel for culture and values fit beyond purely dollars. Having 3-5 buyers compete over your deal strengthens leverage and bidding upside.
  • Verify Track Record and Reputation - Conduct extensive due diligence validating company years in business, ownership structure, number of land deals closed to date, bank & capital partners, online reviews, Better Business Bureau rating, and anything impacting trust or credibility. Only engage serious, ethical players with solid performance history meeting promises.
  • Dig Into Financial Strength – Given many loosely structured or undercapitalized land investors overpromise but then can’t fund acquisitions due to tapped resources, carefully examine true current and near-term financial capability to purchase land assets and close as projected. Request evidence backing this up.
  • Model After-Tax Net Proceeds - Work jointly with your CPA and financial advisor to carefully model net after-tax sale proceeds under various offer scenarios factoring in capital gains rates, transaction fees, installment tax spreading abilities, umbrella operating companies to offset profitability and any other tax mitigation vehicles possible.
  • Negotiate Creative Earn-outs - Given concerns of leaving profit upside on the table, try negotiating customized seller earn-out clauses where you retain revenue share rights if the property gets rezoned, developed or sold within 5-7 years to next buyer for windfall over threshold gain amount.
  • Stress Urgency and Leverage Competing Offers – Make it clear to prospective land buyers you are actively negotiating plus sitting on other competitive cash offers so they know delays risk losing out. Creating healthy bid competition keeps them hungry and aggressive.

By taking an informed strategic approach, carefully vetting land investors, and nurturing multiple buyers clamoring over your attractive land opportunity...you optimize chances of both timely liquidity and optimum sale terms via a local land company that checks all the boxes as your ideal buyer – aligning with financial, risk, sentimental and legacy priorities most important to you.

Frequently Asked Questions (FAQs)

How much below market value will a land company's offer likely be?

Most land buying companies will offer 30-50% below the true retail market value that could likely be achieved if you fully marketed and listed the property. Their discounted offer builds in room for their desired profit when reselling the land in the future.

Should I negotiate a portion of future sales proceeds if the land gets rezoned and resold?

This can be smart to capture additional upside later after offloading the land now at a lower offer. Try proposing contingencies where the seller retains 25-50% of any outsized profits the investor realizes if they successfully get the land rezoned for higher density development then sell within 5 years.

What costs will be deducted from my net sales proceeds when I sell to an investor?

Reputable land buyers will cover the closing and title transfer fees so you get maximum sale proceeds. Unlike listing on MLS, you also would owe no real estate commissions selling directly to an investment buyer. But capital gains taxes will lower net profits.

How long does the process take to sell to a land buying company?

If you accept their offer, reputable land companies can usually close within 30-60 days on average. Some may accommodate even faster closings within 2-3 weeks if you have some scheduling flexibility and sign all paper work promptly.

Can I still sell to an investor if I have a loan secured by the land?

Yes, it is possible if the buyer pays off your entire loan balance plus any prepayment penalties as part of the full purchase amount. They would need to offer enough to clear your existing mortgage securing the property plus extra funds for your proceeds.

About The Author

Bart Waldon

Bart, co-founder of Land Boss with wife Dallas Waldon, boasts over half a decade in real estate. With 100+ successful land transactions nationwide, his expertise and hands-on approach solidify Land Boss as a leading player in land investment.

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