Buying Land as an Investment
Buying land as an investment can be a great way to diversify your portfolio and increase your financial security. While there are risks associated with investing in property, the potential for long-term appreciation, inflation protection, rental income, and tax benefits make it a viable option for many investors.
This guide will provide information about how to research and purchase land for investment purposes and go over the financial and legal considerations involved. We’ll also discuss some methods you can use to increase the value of your land and maximize your returns.
Read on to learn more about how buying land as an investment can help you reach your financial goals.
Raw Land: What Is It?
Raw land, also known as undeveloped land, is an untouched parcel of real estate that has not been improved with structures or other development. This vacant land may be agricultural, forested, industrial, or recreational in nature and can contain mineral or water resources.
Moreover, raw land can be a great investment opportunity because it is typically cheaper and less competitive than developed land. Additionally, it has the potential for appreciation over time and may be eligible for certain tax incentives.
Before you purchase vacant land, there are a few things to consider.
Researching Potential Investments: Buying Land as an Investment
When researching potential investments in vacant land, start by identifying what kind of property interests you. For example, are you looking for recreational or agricultural land? Or do you want to focus on developing land with potential industrial uses?
Once you have a general idea of what kind of property interests you, it’s time to conduct your due diligence. Make sure to research local zoning laws and regulations that may affect the property’s development potential and any environmental or geological issues that could impact its value.
You should also consider the location of the property and its proximity to transportation, schools, and other amenities. Factors like these can affect both the potential resale value of your land and its attractiveness to renters if you decide to lease it out.
Finally, consult with a real estate or tax attorney to ensure you fully understand any legal obligations associated with your investment.
Making the Purchase: Buying Land as an Investment
When you’re ready to make an offer on a particular parcel of land, there are two main ways to go about it. The first is to work with a realtor who can identify potential properties and negotiate prices on your behalf. The second is to make an offer directly to the seller.
When you make an offer, include any contingencies, such as inspections or financing, that must be addressed before closing the property. You’ll also want to establish a timeline for when your offer will become void if an agreement isn’t reached.
Once both parties have agreed to the terms, you’ll need to sign a purchase agreement and put down an earnest money deposit. The final step is to close on the property and transfer ownership.
Increasing Your Investment’s Value
Once you’ve purchased your land investment, there are several ways to increase its value and maximize your returns. You can improve the property by developing infrastructures, such as roads or utilities. You can also build structures like warehouses or homes to generate rental income.
You may also want to consider leasing your land for agricultural, forestry, oil and gas production, or other uses. This can provide you with a steady income stream while still allowing you to retain ownership of your land.
Lastly, consider selling your land as subdivided lots or entering into a joint venture with another investor with access to capital and can help fund development projects.
Buying land as an investment can be a great way to diversify your portfolio and reap the rewards of long-term appreciation. Make sure to do your homework before making any purchase, and consult with professionals to ensure you’re making a sound investment.
Why Buying Vacant Land Is a Good Idea
There are several reasons why investing in vacant land is a good idea for today—and beyond. Let’s explore some of the top benefits below:
As we’ve touched on, investing in land has the potential to increase in value over time. This can be accomplished due to appreciation as well as any improvements or development you make to improve the value of the property. And as a result, you can generate a substantial return on your investment over the long term.
Vacant land requires much less maintenance than other types of real estate investments, such as rental properties or commercial real estate. This makes managing and monitoring your investment easier when you don’t have to worry about frequent repairs or tenant issues.
When you buy vacant land, it can also have some favorable tax benefits. For example, depending on the type of property you invest in, you can take advantage of depreciation or capital gains deductions.
Land Can’t Be Replicated
Land is finite, so what we have is all we have. Arguably, land will gain value as a resource with a limited, non-renewable supply. This thesis makes land an intelligent investment for those looking for long-term security and stability. As long as you own land, you have a powerful bargaining chip, whether you’re looking to sell, lease, or develop it.
Peace of Mind
Investing in a tangible asset such as land can provide you with peace of mind that your investment has real value. You have the ability to see and touch it and make decisions on how best to leverage this asset—and its potential returns—for yourself.
As a tangible asset, there’s much less risk involved than investing in something like stocks. Stocks can rise or fall quickly and without warning, while land can and likely will remain more stable over time.
Compared to other forms of real estate, land can be relatively affordable. And while it may require a more significant upfront investment to purchase, you are likely to see a stable return on your investment in the long run.
What’s more, you needn’t worry about footing the bill for upkeep and maintenance (i.e., a leaky roof, broken foundation, mortgage payments, and so on). In the vast majority of cases, buying land as-is won’t require you to shell out any additional money.
Lack of Competition
Ask most real estate investors what one of their biggest challenges is, and you’re likely to hear “Competition.” There is indeed a lot of competition in the world of real estate, whether from other investors or buyers.
Land investments are different. There’s typically less competition, as most buyers and investors focus on existing structures or buildings.
That means you can get a good deal on land without worrying about someone else swooping in and offering more money than you.
Lack of Legislation
Another pesky issue for investors is the ever-changing nature of local laws and ordinances. However, since land investments are so broad and varied, this isn’t likely to be a significant concern.
In other words, you don’t have to worry as much about legislation or zoning issues with land investments since the potential uses are so varied. Governments don’t have the capacity to keep up with all of the possible scenarios associated with land investments.
So you can maintain ownership of your land without the risks that generally come with traditional real estate investments. Moreover, you can hire attorneys to ensure you’re adhering to government regulations.
Why Land Investments Are an Excellent Way to Make Money
So far, we’ve seen why investing in land is a good idea. From long-term security to the potential for tax benefits, land investments are an excellent choice for anyone looking to make sound financial decisions.
In addition to being largely low-maintenance, these investments usually carry fewer risks than other types of real estate investments, making them an attractive option for those just starting out.
Plus, by owning land investments, you don’t have to worry about competition or complex legislation. So, buying vacant land is an excellent choice if you’re looking for a reliable and secure way to invest your funds.
But what about making money from the land you purchased? That’s where the real potential lies. Depending on what you plan to do with your land ownership and the area it is located, you could make money from various sources.
For example, you could rent or lease out your investment for farming, grazing, or livestock-raising land. Raw land investing also gives you the freedom and flexibility to use it for recreational activities like camping, hunting, or fishing.
You can even buy raw land and develop it for housing or commercial properties. Either way, there’s great potential to earn substantial passive income by purchasing land.
If you plan to hold onto your raw land investment for a while, you can sell it at a higher price down the road for a cash windfall.
In fact, it’s relatively common to buy and sell land as a method to generate significant returns within the real estate asset class. So if you’re solely buying raw land intending to flip it later, you could profit if you analyze and find well-priced deals.
The key is to do your research and find the right piece of land that has the potential to generate a return. That said, you don’t necessarily need the biggest and best piece of land in the area. It would be best if you merely bought land that has the potential for development, or in other words, raw land with good prospects.
Buying raw land as an investment strategy can be highly lucrative if done right, and it can provide added security to your portfolio.
Buying land is a good option if you’re looking for a way to make money while also maintaining long-term security. So do the research, find what works for you, and start investing in land.
Raw Land: Does It Appreciate or Depreciate?
This is a question often asked by those considering investing in land. Generally speaking, raw land tends to appreciate over time, but it also depends on various factors.
The most important factor is location. If the land is located in an area with high demand, then the value will continue to increase as more people move in. Furthermore, if the land is close to other amenities, such as shopping centers, parks, or recreational areas, its value could increase even more.
Another factor to consider is the amount of development that has taken place in the area. It could be a good investment if new or existing homes and businesses surround the land. However, if the general area still needs to be developed, then it could be more challenging to predict whether the value of the land will go up in the future.
Yet another prospect for increasing value is the potential for future use. If the land can be used for development, whether it’s commercial or residential, then it could see an increase in value as potential buyers look to build in the area.
Ultimately, investing in raw land has its risks and rewards. It may take more time to appreciate as quickly as other investments, such as stocks or bonds, but it can be a great way to diversify your portfolio and potentially make long-term gains.
And as mentioned, you don’t usually have to worry about the risk of losing your entire investment, as land is a tangible asset that’s highly unlikely to go down significantly in value, unless, of course, an act of God, such as a geographic or natural disaster, occurs.
At the end of the day, raw land is almost always going to appreciate over time due to its high demand and limited supply. However, the rate of appreciation is not guaranteed and will depend on multiple factors.
Short of natural disasters like earthquakes or being located on a flood plain, land is generally safe to invest in and can yield long-term rewards.
How Long Can You Finance Land?
When it comes to financing land, most lenders will offer up to a 10-year loan with an interest rate that is slightly higher than the typical mortgage rate. However, the actual amount of time will depend on the lender and other factors such as credit score, loan-to-value ratio, and the type of land you are purchasing.
It’s important to note that while you may be able to finance your purchase, you will be responsible for all closing costs, such as appraisals, title insurance, and other fees.
In some cases, you may also be required to put a certain percentage down in order to secure the loan. For example, most lenders will require at least a 10-15% down payment.
States with the Cheapest Land
When it comes to buying land, the price can vary greatly depending on where you’re looking. Generally speaking, some of the most affordable states include Arkansas, Tennessee, West Virginia, Mississippi, New Mexico, and Arizona. In fact, New Mexico has some of the lowest-priced land per acre.
Surprisingly, some areas of Florida also have some of the lowest land prices in the country. So no matter where you decide to purchase, there are great deals to be had if you know where to look.
Keep in mind, though, that you’ll still be responsible for annual property taxes in your chosen state, so make sure you factor this into the overall cost of your purchase. It’s also essential to conduct due diligence on the land, such as researching soil, water, erosion, and climate conditions and ensuring that you’re clear on any local laws and regulations that may affect your property.
What to Look For in Raw Land
When it comes to buying land, the most crucial factor is that you know what you’re looking for. Whether rural or suburban, wooded or flat, understanding your needs and preferences will help you narrow your choices.
Additionally, consider factors like zoning and property access, as well as any local restrictions that may be in place. You should also consider if you wish to build any real estate on the land, as this will affect what type of land you should look for.
You might get a great deal purchasing raw land in flood zones, but it’s unlikely that you’ll be able to do much with the land beyond keeping it as a recreational area.
Finally, make sure you research the history of the land and any previous owners. This may help you to decipher if there have been issues with the property and whether there may be challenging topography or zoning issues.
Most Common Types of Land Investments
When buying raw land, there are typically three main types of investments: development land, timberland, and recreational land.
Development land is usually used for residential or commercial projects such as building a new subdivision, shopping center, or manufacturing plant. The value of this type of investment depends on the location and potential development opportunities that the land provides.
Investing in timberland involves buying forested areas and managing them for various reasons, such as harvesting lumber, creating wildlife habitats, or recreational activities. The value of this type of investment can appreciate over time as the trees grow and mature.
Recreational land is often used for activities such as hunting, fishing, camping, and other outdoor leisure activities. This type of land can also be sold or leased to others for the same purposes. The value of a recreational land investment will depend on its location and the quality of available recreational activities in the area.
Each of these types of investments has its own unique benefits and risks. So be sure to do your research before investing so that you can make an informed decision about which type of investment best meets your needs.
What to Consider Before You Purchase Raw Land
When it comes to investing in raw land, you should consider a few things before you make any decisions. Perhaps most importantly, you want to confirm whether any restrictions or zoning regulations may limit how you can use the land.
It would be best if you also verified whether there are any other properties nearby or any infrastructure like roads and utilities that need to be developed for the parcel to be used.
If you’re thinking about buying vacant land for farming use, there are additional responsibilities that you’ll need to consider, such as testing the soil and preparing it for crop cultivation. You also need to be aware of any potential environmental risks or hazards that may affect your investment.
Another factor that is likely to affect your decision is whether utilities are available in the area or if they need to be brought in. This can have a significant impact on the cost of development and should be taken into account when making your purchase decision.
It is also essential to verify whether there are any existing liens or easements that affect your ability to use the land as you planned. Research these factors before purchasing to avoid costly surprises down the road.
By doing your due diligence before you buy raw land, you can ensure that you make an informed decision and minimize the risk of investing in a property that won’t meet your needs.
Buying Land as an Investment: Closing
Buying investment land can be a great way to diversify your portfolio and reap long-term rewards. However, it’s important to do your research first to ensure that the land you purchase is suitable for your needs and will provide the best value for your money.
With the correct information and guidance, you can make an informed decision that will best serve your investment goals.
Josh is a financial expert with 15+ years on Wall Street as a senior market strategist and trader. Josh graduated from Cornell University with a business degree in Applied Economics and has held numerous U.S. and European securities and brokerage licenses including FINRA Series 3, 7, 24, & 55. In addition to running an investment and trading firm, Josh is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses himself.