Demystifying the Covered Land Play

by Greg Barrett

The covered land play is a creative investment strategy that enables real estate entrepreneurs to generate outsized returns while mitigating their downside risk.  A covered land play is when an investor buys a piece of income-producing real estate with the intent to redevelop the property into a higher and better use.  Covered land plays typically yield low-to-moderate terms in the short term with the potential for high returns over the long-term. The reason it is called a “covered land play” is because the current income produced by the asset should be sufficient to “cover” the carrying costs and provide a modest yet secure return in the interim.  The “land play” component suggests that the primary motivation for purchasing the site is because of the upside potential that can be generated by redeveloping the property (land).  In other words, the real reason you are buying the property is because of the value of the land, not the current income stream. 

“Covered” – the existing net operating income being produced by the asset is positive. The income mitigates the risk inherent in redevelopment. The current income stream makes the acquisition less risky that acquiring raw land.

“Land Play” – the site (land) can be redeveloped into a higher and better (more profitable) use.

The covered land play presents an asymmetric return profile.  On the one end, it has limited downside due to the existing income.  On the other end, the property has the potential to generate outsized returns if redeveloped into a higher and better use. Below, I lay our where covered land plays are often found, provide examples, and suggest the optimal situations to implement the strategy.

Where to Find Covered Land Plays

Infill Locations

Generally, covered land play sites are infill locations.  It’s possible to buy an orchard or something of that nature on the outskirts of the city; however, you may be waiting a very long period of time to effectuate the covered land play.  That’s not to say that these properties aren’t going to appreciate; they likely will, but I wouldn’t consider them a covered land play.

In the Path of Growth

More often than not, covered land plays are located in the path of growth; the area’s population is growing, incomes are rising, properties are being redeveloped.  Many times the city is hoping to increase the density in these areas which will allow the real estate entrepreneur to redevelop into a higher density (higher profitability) use.  Gentrifying urban areas with improving demographics is a great place to find covered land play opportunities .

I suggest looking for properties that look inferior to their current or future surroundings.

Examples of Potential Covered Land Plays

Car Washes

A self-service car wash is the classic example of an asset that meets the criteria of a covered land play.  Typically, they are located in dense areas, with strong traffic counts and good visibility.  The income generally covers the carrying costs and the purchase price wont be too high because the site is not reaching its full potential.

Low-rise, Vintage Apartments

With close proximity to demand drivers (schools, employment hubs, hospitals etc.) or mass-transit, these tired building can be redeveloped as class A apartments.

Class B-C Retail in the path of growth

Older retail properties in the path of growth can be acquired at a low cost, yet can produce enough income to cover the carrying costs. After acquisition, the real estate entrepreneur can entitle the property for a higher and better use (e.g. multifamily, office, or mixed-use).

Mobile Home Parks

If located in the path of growth, the city will typically be interested in allowing for a higher-density use. A higher-density use will alleviate the increased demand for housing, while simultaneously increasing tax revenue. Look to develop apartments on these sites.

Self-storage Facilities

Well-located self-storage facilities are easy to operate and generate positive cash flow.  If the property is well-located and can be entitled to allow for multifamily or office, then this could be a great opportunity for a covered land play.


I worked on a deal where the owner of one property bought the adjacent property to assemble an area large enough to build a larger, more profitable, structure.  The investor knew that it would take some time to re-zone, so he bought the single-tenant adjacent property with about 18-months left on the lease.  The 18-months would give him enough time to work through the entitlement process and ultimately build a large and profitable asset on the assembled parcels.

Who Should Consider Covered Land Plays

Having superior market knowledge, knowing where future development is likely to be, or knowing what the city council wants to be developed, are all situations that will give real estate entrepreneurs a competitive advantage. This local knowledge will enable the real estate entrepreneur to identify covered land play opportunities.  Local knowledge is a key to successfully carrying out the strategy.

The covered land play is one of the many strategies real estate entrepreneurs can leverage to create value and generate outsized returns.  Keep this strategy in the back of your mind as you evaluate new investments and redevelopment projects; as it allows you to mitigate risk while you endeavor to generate massive returns.

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