The Real Estate Investor’s Take On Eminent Domain

Is eminent domain running out of control in America? How is it effecting U.S. property owners? Why is it likely going to increase? How can it actually be leveraged strategically by real estate investors to make a profit?

A couple in Colorado has been threatened with losing their property by eminent domain, after being told they can’t use a motorized vehicle to navigate the land they own and which hosts their retirement home. This is likely just part of a new surge in the use of this government power to seize American land. So how does eminent domain work, why is it rising and why isn’t it always a bad thing?

What is Eminent Domain?

Eminent domain is a power given to government to seize private land. This right and power can be executed at virtually any time for a variety of reasons. It’s all based on the principle of what the authority determines the ‘highest and best use’ of the land. Protections for private property owners require that a ‘fair’ price is to be paid for the property upon its seizure. This is obviously a touchy subject and is open to a lot of debate. In the last few years, this particular practice hasn’t been very popular. However, it has certainly been more controversial with some losing their properties for a fraction of what they paid for them due to the depressed values at the time.

In the past, the government has used the power of eminent domain to seize land for airports, utilities and similar projects. More recent examples not only include the couple in Colorado I mentioned briefly, but multi-family properties in Florida being turned into larger developments, New York seeking to clear coastal land in storm prone areas, and properties being seized for educational institutions in the Northeast.

Why Eminent Domain is Just Getting Warmed Up

Eminent domain is likely just getting warmed up for a number of reasons:

  • The motivation to acquire more property before it becomes more expensive
  • As local government has a better financial footing to enable it to do so
  • To force and maintain density
  • In order to improve tax revenues, especially in weaker areas
  • To accommodate deep pocketed developers
  • To forward, local, national and international political agendas
  • To reduce economic risks and personal injury from storms and disasters
  • To allow for growth and expansion
  • To protect the environment

Profiting in the Face of Eminent Domain

For most private individuals and real estate investors, eminent domain sounds scary and can be perceived as a threat. However, savvy real estate investors can find ways to turn it in their favor. We’re not talking about trying to take advantage of regular citizens and trying to get their properties on the cheap or making a lot of noise on your property until the Governor decides to step in and force you off your land at a premium.

However, there can be positive opportunities for everyone. Investors could potentially approach local governments with plans for property which could be developed or re-purposed and engage their assistance through eminent domain to take control of it. This could be a win – win if the local economy gets a boost, tax revenues increase and jobs are created. Those willing to do a little speculation, or with some (legal) forward knowledge, may be able to acquire properties in the path of eminent domain ahead of property prices rising.