Is it OK to raise the rent from time to time

Ground leases are usually long-term leases. Should I increase the rent periodically?

Yes, your ground lease should provide for rent increases at least every five years. How much depends on which one of three methods you choose.

1. Proportionate increase based on the increased value of the real estate. This will require appraisal expenses and can lead to disputes among competing appraisers (yours and the tenant's) and a lawsuit unless you have a mediation clause.

2. Predetermined increases, which might result in the tenant paying above-market rates (bad for them, good for you) in the future, or below-market rates (good for them, bad for you.)

3. A percentage of gross sales at the location.

I strongly recommend using an experienced ground lease broker to negotiate these transactions. As a fallback, read everything you can about the subject. I am not saying you should dispense of the lawyer. I am saying that you should use his or her time wisely by being a more knowledgeable investor and asking the right questions.

I want to invest in land, and more land. My friends think I am crazy. What can I tell them?

There are many excellent reasons to invest in raw land. Below are a few answers you can give your friends.

You can buy well-positioned land in the path of progress very cheaply. When the area matures, you may be able to sell the land for ten or twenty times what you paid for it. Think about this - people buy such land by the acre, but they sell it by the square foot. There are 43,560 square feet in an acre. A seemingly outrageous purchase price of US Dollars 50,000 per acre in 1998, might become US Dollars 10 per foot - US Dollars 435,600 per acre - or more in 2008. Corners are especially valuable.
Undeveloped land can often be rented to others until it has matured. Potential tenants include agricultural uses for pasturage, mobile home sales lots, and utility company vehicle parking.
If it is covered in harvestable trees, the timber itself can provide valuable income. The federal government, and many state governments, subsidize planting pine seedlings on land.

How can I determine where the "path of progress" is going?

That is the important question when investing in raw land. Find out where new schools will be built. Local governments make those decisions several years in advance. They usually have more money to spend on consultants and specialists than you do.You can ride their coattails. Besides, building new schools becomes a selffulfilling prophecy for growth. The schools go where they anticipate growth. People move where the new schools are. Retail businesses follow the rooftops.

Growth will proceed first along the major thoroughfares and arteries. As long as people can travel these routes to work in a reasonable amount of time each morning, new construction will continue outward. When the drive-time becomes intolerable according to local expectations, developers will begin expanding with more depth, but closer to important interchanges or to work.

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