Investing in land has traditionally been seen as an option for the wealthy. However, with low interest rates prevailing, more and more people are wondering if buying land is a good investment for them.
In this article, we will explore what land investment entails, discuss whether land is a viable investment option, and provide 6 valuable tips on how to invest in land successfully.
Understanding Land Investment
Before delving into the specifics of land investment, it is crucial to understand that it differs from investing in rental properties or buildings. Unlike these options, raw land does not generate income. The primary objective of investing in land is to acquire property that can be sold in the future at a higher price.
Types of Investment Land
Investment land encompasses more than just commercially or residentially developed areas. There are several other types of land investments to consider, such as:
- Farm land for livestock or crops
- Recreational land for outdoor activities
- Orchards
- Vineyards
These forms of land investment require additional funds for development. When discussing land investment, it generally refers to the purchase of undeveloped property that can be used for various purposes or sold to developers.
Another aspect to consider is the investor's initial intent. According to Finweb.com, land investment can be categorized into three types:
- Long-term holding: Investors wait for the surrounding area to develop, making it profitable to sell the land.
- Subdivision and development: Suited for larger investors looking to sell land parcels.
- Speculation: Investors anticipate developments that will enhance the land's value.
The choice of land investment depends on the individual or corporation involved, as each category carries different risks and goals. Some investors prefer low-maintenance properties for long-term investments, while others are willing to take risks based on hunches.
Pros and Cons of Investing in Land
As with any investment, there are pros and cons to consider when deciding whether buying land is a good investment. Some benefits of land investment include:
- No tenants, resulting in less time commitment for owners
- No renovations or repairs required
- Lower cost compared to developed properties
- Potential increase in land value over time
- Flexibility to resell as raw land or develop it for higher profits
- Opportunity for financing future buyers, increasing earnings
However, it is important to note the downsides of investing in land:
- Land is not a liquid asset and cannot be quickly sold for cash
- Potential limitations in property development due to topography or zoning regulations
- Ongoing tax obligations and zero cash flow
- Lack of rental income, making it less attractive to some investors
Forbes.com even lists land investment as one of the 6 worst real estate investments due to its lack of rental income.
6 Tips for How to Invest in Land
If you have decided that buying land is a good investment for you, here are 6 essential tips to guide your journey:
- Clarify your investment objectives: Ask yourself key questions to define your goals and expectations for the property.
- Walk the property: Take the time to visit and inspect the land in person, ensuring the absence of potential problems.
- Check zoning issues: Verify that the local zoning regulations align with your investment purpose.
- Look for utility hookups: Determine if electrical, sewer, and water hookups are readily available, or if additional costs will be incurred.
- Investigate the tax situation: Consider the property taxes associated with your investment and ensure they are reasonable.
- Secure financing: Understand that obtaining financing for land investment can be challenging, so explore alternative options and negotiate favorable terms.
By adhering to these tips, you can make informed decisions and increase your chances of success when investing in land.
Is Buying Land a Good Investment?
Ultimately, the decision to invest in land depends on various factors, including your investment objectives and risk tolerance. Land investment is well-suited for long-term investors who prioritize low-maintenance investments and have the financial means to cover taxes and other expenses.
However, it's important to recognize that investing in land does not guarantee automatic returns. The illiquidity of raw land poses potential risks, and the appreciation of specific properties is not guaranteed.
To increase your chances of a successful land investment, consider working with an experienced real estate professional who specializes in buying and selling investment land. Their expertise and knowledge of potential growth areas can supplement your investment strategy and improve future property sale prospects.
With careful planning and thorough research, investing in land can be a valuable addition to your long-term wealth-building strategy.