Credit squeeze means more opportunities for raw land acquisitions.

The recent credit crunch and related financial industry turmoil has dramatically limited financing options for real estate acquisitions, causing many to step back from a market that had been moving at a feverish pace only nine months ago. This widespread reversal in momentum has created ideal conditions for those considering the acquisition of raw land. Historically, great wealth has been accumulated by individuals who understood the concept of buying and holding raw land, and this may be one of the best times to buy land since the early 1990s.

The ready availability of capital from Wall Street lenders and the commercial mortgage-backed securities market created a significant run-up in land prices during the past several years. Developers worked overtime to put new products onto the market while purchasing land lots for future development.

However, the dramatic pull-back in the credit markets has made it extraordinarily difficult for buyers to obtain financing. Not surprisingly, there is a historic property inventory backlog, and while demand exists, it is constrained by credit woes. The resulting slowdown in development across the country has prompted significant decreases in sales prices.

In some markets, particularly in Florida, California, Nevada and other West Coast states, homebuilders had amassed large amounts of undeveloped land on which they had planned to construct new homes. This type of scenario makes now an excellent time to acquire raw land because builders are looking to move existing inventory off their books. They bought the land at a time when the residential sector was thriving and prices were rising. Many homebuilders now own a great deal of land that is dropping in value, and, increasingly, they are seeking to dispose of this land, even if it means absorbing a loss.

As the real estate market became overheated during the past several years, many savvy investors withdrew to the sidelines, waiting for value to return to the market. These investors, recognizing that acquisition conditions are becoming ever more favorable, are beginning to increase their activity. This trend is likely to continue as the economy moves beyond the credit crisis and through this period of disruption.

Investors should see plenty of opportunities to acquire land over the next 18 to 24 months. Most market watchers do not expect the glut of homes on the market to begin to clear up until at least midyear 2009, meaning that raw land will be available at an even greater value. Now may well be the ideal time for acquisitions--before the economy turns around and before interest rates become less favorable. Holding raw land as an investment also offers buyers some downside protection at a time of stock market volatility. A well-researched investment in land can provide numerous benefits to investors and make raw land one of the most sound investment strategies available today.

Land investors must have a mid-to-long-term view, holding the parcel until the next real estate cycle comes around and offers the opportunity to sell. Correctly identified and evaluated in the path of growth, land can sometimes more than double in value in five years. In fact, many land buyers do not expect to see a return on their investment for as long as three to seven years. When the cycle Runs, however, investors with large tracts of raw land will be perfectly positioned with valuable assets to sell at a time other investors are just beginning to search for investment opportunities.

Land parcels are now available at sharply discounted prices, with some sales representing a 50% loss for the seller. While opportunities to buy land remain, this may soon change. When prices fully stabilize, a flood of investors will be seeking to snap up land bargains, pushing prices higher, making today an ideal time to buy.

By H. Ross FORD III, PRESIDENT AND CEO, TCN WORLDWIDE