If you’re an investor looking to add variety to your portfolio, buying commercial land is a great way to do it. Unlike investing in property, you can purchase a piece of land, barely put work into it, and still reap future rewards no matter the economy.
What are the Benefits of Investing in Land?
Always in Demand
The demand for vacant land has been growing steadily for the past 10 years. The average price growth is about 2%-4% a year. Investing in land is an excellent opportunity because the demand will be there, especially as supply goes down.
High Risk, Low Reward
Land bought and held for the long term almost always generates money and is one of the easiest ways to make a profit. There are many different ways to use land: sell it, lease it, grow crops, etc. Once you own a piece of land, save all of your paperwork, documenting any improvements made to increase your land’s value.
Land is a tangible asset, making it potentially less risky than stocks or cryptocurrency. Land will not suddenly disappear or drasticaly lose its value overnight. Even when the economy is poor, chances are land value will still increase.
Are There Any Cons When Investing in Land?
While land is relatively easy to maintain, you should wonder why the property is vacant before you purchase it. Before you take the plunge, do some research on the land to try and uncover as much information as you can.
No Immediate Cash Flow
Without having steady income coming in, it can be challenging to pay expenses such as improvement costs, property taxes, and in some cases, association fees.
One way around the lack of cash flow is to sell parts of the land or specific rights such as mineral or recreational use. You can also use it as a Christmas tree farm or rent it out for special events. The key is to be creative.
Harder to Finance
Traditional financing is hard to find when purchasing land. If you build on your property, but it takes a while to sell, you are still financially responsible. This type of situation is called an illiquid investment.
Physical Issues with the Land
Before you invest in land, you need to do your due diligence and physically inspect it for issues. For instance, flat lots can cause problems with water runoff, and steep land is hard to develop. It is beneficial to research the septic, sewer, and water history before investing.
Land Investment Strategies
The beauty of investing in land is there are multiple strategies you can use to make money. In addition, buying land gives you the freedom to use it however you like.
Buy and Wait
You can buy land, do nothing with it, and still make money. Investing in land is less operationally intensive than investing in a property as there are no tenants, minimal upkeep, and land generally appreciates over time. In addition, since land is always in demand and supply is scarce, it puts you in a profitable position when it comes time to sell.
If you’re interested in flipping real estate, then flipping land is a great place to start. Raw land is easier and cheaper to turn around than a building. In addition, flipping undeveloped land can make it more interesting and lure in potential buyers.
Ways to flip a piece of raw land include clearing it thoroughly, adding access to connect it to the main highway, getting septic approval, converting it from a recreational zoned property into a building site, and more.
Take Raw Land and Improve It
If you’re planning to flip your land eventually, you should consider buying a large piece of land. The more land you have to work with, the more financial opportunities available.
For example, if you have 15 acres of land, you can divide that into three 5-acre parcels. Breaking the land up into smaller parcels will help you make more money.
Factors to Consider When Buying land
Though buying land is a relatively passive investment, it is still essential to consider certain factors.
The location of your land has a significant impact on your investment. Picking land close to popular attractions, schools, bus stops, train stations, etc., can increase your odds of making a successful land investment.
Zoning and Restrictions
Before you invest in a piece of land, you should know and understand its zoning and potential uses, what the zoning doesn’t allow, and the possibility of having the land rezoned.
If you plan to use the land for a specific reason, you must find out what the current zoning is. For example, some zoning permits farming, while others can only be used for residential purposes.
Size, Shape, and Terrain
The size and shape of your land play an essential role in potential uses for the land. If you have a specific plan for buying land, such as turning it into a farm, size and shape are important.
You should also know the terrain of the land, especially if you plan on using it for agricultural purposes or building properties. It is important to consider the terrain when reselling, as the more versatile the land is, the higher the sales price. The ideal type of land to look for when investing is rectangular flat land for its ample space and popularity.
Where to Find Land to Invest In
Location is vital when purchasing land. Purchasing near or in a city is a great idea, but if you can’t, consider population, economic growth, and popular businesses. Each state offers different opportunities, so if you have a plan in mind, you may need to look to a different location for your needs.
Texas is a great state to purchase land in if you want to build a farm or ranch. If you use the land for agricultural purposes, you may be eligible for property tax exemptions. The land can also be eligible for property tax exemptions if you use it for pasture, wildlife preservation, agriculture, timberland, and more.
Florida has 237 days of sun, compared to the US average of 205 days, which is good to know when purchasing land in this state. The number of sunny days makes Florida an excellent location for parking lots near beaches or orchards for citrus trees. Since Florida is a popular vacation spot, purchasing land here bodes well for a positive return.
With a vast amount of land available, Utah is a great location to invest in a large amount of land at a reasonable price. In addition, the various natural parks and outdoor beauty make Utah a popular tourist destination. Use this information to your benefit and use your land to store boats, grow crops, or even as a campground.
The Bottom Line: Is Land a Good Investment?
Investing in land is a great investment opportunity but does require some research. While little to no effort is involved with owning a plot of land, you can increase your profits if you have a good plan. Envisioning what you use your land for will help narrow down the best destination depending on terrain, restrictions, population, and more.