As with many types of real estate, investing in land can mean big rewards down the road. When buying land as an investment, however, it’s important to consider factors like location, zoning, financing, development opportunities, and other factors that could impact property values. Doing thorough research ahead of time can help ensure a solid ROI when you invest in raw land.
What to Look for When Buying Land
If you’re considering buying land as an investment, there are a few key things to evaluate before taking the plunge.
Location is one of the most critical elements when investing in land. This key factor will largely determine the future value of your property, so choose wisely when selecting a parcel. Look into zoning laws and restrictions, development trends in the area, and accessibility to resources like transportation or utilities.
Types of land
The common saying about land is that “they aren’t making any more of it”—but it’s also true that not all land is created equal. Some types may offer greater returns than others depending on their suitability for development or agricultural uses. When judging land investments, consider whether it makes sense to buy vacant land for farming or development purposes (residential or commercial) or to buy and hold.
Research the current market value of the land you’re interested in to determine whether it’s a good investment opportunity. If you’re not an expert on the local market, consider consulting with a real estate agent or appraiser. Doing so can help you accurately assess a property’s current and potential future value.
Investing in land may require financing, so think about your budget and research available funding options. Consider applying for loans from banks and credit unions, or look into grants and incentives if they are available. It’s important to note, though, developers must usually own that land outright for it to secure a construction loan. So, if you need to finance your acquisition, it may be necessary to pay off that loan before beginning development.
Research the local zoning regulations and restrictions where you’re looking to buy land. Local laws can affect your ability to use the property for certain activities, so familiarize yourself with these regulations. Also look at the ease of obtaining necessary permits or variances before you make a decision.
Hazards and risks
Before committing to the purchase of land, take time to research any potential hazards or risks associated with the property. These may include proximity to wetlands, toxic materials, steep slopes, or other features that could pose an environmental risk to you or your investment.
Investigate the availability of utilities for your land. Check if there’s access to water, sewer, electricity, and gas on the property or nearby. If not, make sure you have a plan to install these services before finalizing your purchase.
Easements and rights
Understand what easements, rights of way, and other restrictions may affect your land investment. Determine if you will be able to access the property or if there are any additional costs for the use of these rights.
Taking the time to do your due diligence when buying land is important because it can help ensure your investment pays off. With careful planning and research, it’s possible to make a wise decision that will benefit you in the long run.
Does Land Appreciate in Value?
Generally speaking, land tends to increase in value over time, but that isn’t always the case. Ultimately, though, whether or not your land investment appreciates in value depends on a variety of factors—including location, types of land available, current market conditions, financing, and zoning regulations.
Therefore, it’s important to consider all aspects of the purchase process before investing. By taking the time to research these factors, you can make an informed decision that will help ensure you earn a return on your investment.
Pros and Cons of Buying Land
There are many reasons to buy land, but there are also a few drawbacks to be aware of before buying. Familiarize yourself with the pros and cons of buying land before investing your money in a property.
Pros of buying land
- Land is a tangible asset that developers and investors can use for a variety of purposes.
- Land investments are typically less risky than other types of alternative investments.
- Land often appreciates in value over time, which can lead to increased profits.
- There is a limited supply of land, making it a valuable resource in the future.
- Owning land can provide you with tax benefits and other financial advantages.
- You have control over what you do with your land investment and how it’s used.
Cons of buying land
- It can be difficult to find a piece of land that meets your specific needs and requirements.
- The purchase process can be complex and time-consuming.
- There is no guarantee that the land will appreciate over time.
- Land can be expensive, especially in highly sought-after areas.
- You are responsible for the maintenance and upkeep of the property.
- If you don’t live on the property, you will need to hire someone to take care of it.
How to Invest in Land
Land investments can be a great way to secure your financial future, but it’s important to understand the process before you invest. The following steps provide an overview of what’s involved in investing in land.
- Research the market. The first step for investing in land is to research the market and determine what types of properties are available in your area. This will help you narrow your search and focus on properties with the most potential to grow in value.
- Evaluate your needs. Before making any decisions, evaluate your specific needs and decide what type of property you’re looking for. Do you want a residential or commercial property? Is acreage more important than location? These are all factors you need to consider before starting your search.
- Find a property. Once you determine what type of property you’re interested in, it’s time to start looking for a suitable parcel. Use online resources, real estate agents, and other professionals to help find the right property for you.
- Get financing in place. After finding a property that meets your needs, get financing in place so you can make an offer. There are a variety of financing options available, so make sure you understand the terms and conditions before signing on the dotted line. If you’re buying property to develop, consider paying cash so you can use the property as collateral for a construction loan.
- Close the deal. When it comes time to close on the property, ensure you have all the necessary paperwork. This includes title insurance, surveys, and other documents needed to complete the transaction.
Strategies for Investing in Land
Buying raw land is one type of real estate investment, but there are several different strategies that you can use for investing in undeveloped property. Often, land is bought specifically for development purposes (commercial, residential, etc.). Other times, investors buy land to flip it to a specific developer or hold it indefinitely while it appreciates in value.
Here’s how each of these strategies works in practice:
Buy and hold
If you’re looking for a long-term investment with the potential for appreciation, buy and hold is a great option. When you purchase land, maintain it as an asset and hold onto it until the market conditions are right to sell at a profit.
Flipping land is a faster way to make a profit, but it requires more work. Research properties in areas where you anticipate population growth or other market drivers that could lead to appreciation. Purchase the property, complete any necessary improvements or renovations, and then sell it for a higher price.
If you’re looking for a more hands-on approach to land investment, consider developing the property yourself. Keep in mind, though, that you will need to do extensive research and planning before investing in any development project. Consider factors such as zoning regulations, market trends, and potential buyers before investing in land development.
Leasing land is another option for making money from your investment. Leasing can provide a steady income stream while still allowing you to maintain ownership and control of the property. Before leasing land, research local and state laws, as well as any associated costs for the use of these rights. Also ensure that any lease agreements are in writing.
Investing in Land Online
Investing in land is becoming increasingly popular due to the ease of access and low start-up costs associated with online investment platforms. These platforms make it easy for investors to research potential properties, compare pricing, review documents, and complete transactions from the comfort of their own homes. Whether you’re looking for a long-term buy-and-hold strategy or a quick flip, online investing can help you find success in your land investments.
Regardless of the investment strategy you choose, always do your due diligence and research each potential property before investing. Take the time to weigh the pros and cons of buying land, review all documents associated with the property, and make an informed decision that will help you achieve your financial goals.