HBU Property/Land Investments – Highest & Best Use of Property/Land
An important topic surrounding land investments in recent years is “HBU” or “highest and best use” property. It’s also referred to as “higher and better use” property. Another common term for it is “transitional” property. These properties have the potential for increased value resulting from a transition to a higher and better economic use in the next ten to fifteen years. Higher and better economic uses typically include commercial and/or residential development.
Yesterday’s HBU Property Can Serve as a Guide for Today’s Invesments in Land
Here in the Southeast, you don’t have to look far to find yesterday’s HBU property. Anywhere on the perimeter of the Atlanta area, where there is new development. North, south and east of Birmingham, Alabama are another couple of areas. North of Jackson, Mississippi. Most areas around Nashville, especially Franklin. The examples are too numerous to catalog. New shopping centers, residential developments, schools and public facilities are the telltale signs.
A Matter of Perspective – Should All Land Investments be Developed? Good Question.
We’re talking about the investment side of land ownership here. It is certainly debatable whether a shopping mall or new residential development is indeed a higher and better use for what is now a beautiful woodland tract. In fact, that debate is ongoing as problems with sprawl are discussed. Here, we are focusing on investment potential, and in that sense, a sale of land to a developer or someone else who is going to build something on it is HBU, every time.
I don’t really need to write a tome here about it. You get what I’m talking about. The important takeaway is that, given a choice between investing in two properties of equal quality, consider the one with the best HBU potential.
Invest in Quality Land/Properties
That said, I wouldn’t recommend investing in an inferior tract of land (poor soils, a lack of interesting features, difficult access, questionable neighborhood, etc.) just because it’s near an urban sprawl area. You may find yourself spending a lot of time there and never (at least in your lifetime) have an opportunity to cash out on a big HBU transition. The opportunity may never come.
That old retail maxim for a product that won’t sell applies here: a dog is a dog is a dog. Don’t buy a dog for any reason. Buy a quality piece of real estate and, if you can, find one that might have that HBU quality to it.
As a broker of rural properties in Alabama and Georgia, I can help you evaluate the HBU potential of a property and, hopefully, help you make a great investment for you and your family.