Buying Land As An Investment
Land purchased in 1970, for instance, has likely seen a significant value increase over the years despite many market fluctuations. If you purchased land just before the market crash of 2007, on the other hand, it will probably turn up a loss if you try to sell today.
buying land as an investment
Land ownership can be a great investment as long as you enter the deal with an awareness of all of the risks and pitfalls involved. By conducting careful research, investors can take advantage of low property prices and purchase land that will be worth much more down the road.
Undeveloped land is much less expensive in terms of maintenance and property taxes and represents a significant array of possibilities for future use. Considering that the amount of undeveloped land is decreasing at an exponential rate, that property will likely only increase in value, particularly for land in areas deemed desirable and experiencing rapid expansion.
When most people think about real estate investing, they picture a derelict house in need of immediate rehabbing. Home remodeling, also known as fix-n-flips, has been popularized by numerous house-flipping reality television shows. However, house flipping is only one of the many forms of real estate investing. Another profitable method of investing is in the land itself.
Land speculation or raw land flipping is when you purchase or contract to purchase vacant land with the intention to flip it as an investment. Anyone can buy land; however, it takes a specific type of investor to turn raw empty land into a valuable asset. For example, Contractors and home builders, often referred to as development investors, are some of those who often possess the skills and qualifications necessary to develop raw land.
The find, formulate and flip method is more complex and requires additional hands-on work. With this method, the investor intends to formulate a more favorable deal with a higher profit margin. This can be performed by doing some of the leg work required for developing the land. For example, ordering land surveys, confirming and identifying the zoning requirements necessary for building or even combining two or more parcels into a tract of land for resale.
Parcel flipping can be performed by any level investor; however, a little experience in investing can aid in the process. Parcels and tracts of land differ from residential lots and normally take a little longer to flip but can provide larger profits as they are not as readily available in desirable areas.
For either method, when hunting for parcels, keep an eye out for new construction areas where shopping centers and neighborhoods are being developed. Parcels and tracts around fresh developments can be a great place to begin your evaluations when attempting to flip land.
Residential lot flipping is a method in which an investor purchases or contracts to purchase an empty lot and resells the land to another investor, typically a development investor. Residential lots differ from parcels or tracts of land because they are normally in subdivisions and already zoned for development.
The purchase and resale method is used when the investor has the capital to purchase the land from the landowner. This means the investor closes and funds the initial purchase of the land and later resells the land to another investor.
Some vacant lots are empty for a reason. The lot may have been subdivided and no longer meets property standards for development, or there may be an easement on the property that prevents it from being developed. A simple call to your local zoning department should clear up any confusion; you can also order a land survey prior to purchase.
In fact, some of the obstacles that prevent people from investing help make land a great opportunity for others. Here are some of the primary reasons why buying vacant land can be a good investment, along with a quick look at its inherent risks.
For most investors, an illiquid market is a negative, not a positive. After all, if an asset is illiquid, that means it is difficult to sell. However, this often opens up opportunities for investors in the know. Since many investors are scared away from illiquid investments like land, it can often be purchased for below-market valuations. An astute investor with an understanding of the appreciation potential of a piece of land can benefit from its illiquidity as it will keep away competitive offers.
Undeveloped land, often called raw land, is a vacant area without any public utilities, buildings or even driveways. Often, undeveloped land is in rural areas found off county roads and could be the place to build your forever home. It can be used for many other purposes as well, including:
But with all its potential and possibilities, vacant land can be a very exciting investment. Let's take a look at a few options when investing in vacant land, as well as some pros, cons, and considerations.
If you can find a reasonably good deal on a large plot of land in the right area, it could be worth buying and holding on to. It's likely to appreciate in value over time as demand grows, and there are several ways you could make money off of it in the meantime.
Possibilities to explore, depending on the characteristics of the parcel and its location, include selling the mineral rights, setting the property up as a hunting lease, or even leasing it out as farmland. You could also think long term by planting a portion of the land in timber while still making an income through one of the aforementioned methods.
Current developments in the housing market are also a huge plus for landowners. After a significant dip, homebuilding is back in a big way. New home construction is up 22% over this time last year, making the prospect of starting a housing development well worth looking into if you think you've found the right land for that type of project.
But what if you don't have hundreds of thousands of dollars to invest in a huge parcel of land? In that case, you may want to simply take it one lot at the time -- one residential lot, that is. If you can buy an undeveloped, or "raw," lot in a new or desirable residential area and make some improvements to the land, you may be able to sell it at a considerable profit to someone looking to build their dream home. Think of this as the land version of house flipping.
These improvements could include clearing a site on the land where a home could eventually be built and creating easy access to that area, if needed. This could be an effective way to take advantage of the homebuilding boom without having to make a huge up-front investment, perhaps especially in a growing suburb. And this way, you can take it one piece at a time.
If you've been investing in real estate primarily in the form of homes or commercial property, vacant land can feel like an entirely different ball game. But the most important difference is that you'll need to ensure any land you're interested in will be suitable for your intended purpose (or purposes) before pulling the trigger. This could include making sure most of the land is high and dry and that it isn't subject to any zoning restrictions that could get in the way of your plans.
The vast potential of vacant land is a big part of its appeal. So is its simplicity, in that you don't have to do anything but hold it and wait for it to appreciate, if that's your preference. But the No. 1 reason vacant land is often a safe investment is a bit of a cliché, and for good reason: They simply aren't making it anymore.
You owe it to yourself to at least be educated about the different types of real estate investing. Most of you are familiar with the fancier and more glamorous real estate methods. House flipping and home renovation shows take over TV channels. Robert Kiyosaki made townhomes and other building investments look easy.
Land cannot vanish or disappear like shares or stocks. If tomorrow the world decided that money was just a useless piece of paper and has no value, land will still be something. It will be something tangible and physical that is yours, regardless of what the global economic situation is. Currency and monetary values may change, but ownership does not.
When purchasing and investing in land, there are no risky government legislations that owners have to pay attention to. The Dodd-Frank [introduced by Obama in 2010, as a response to a massive economic downturn in the U.S.] applies heavy rules to real estate but does not apply to vacant land.
The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) [introduced in 2008, as a response to the mortgage crisis at that time] does not apply to transactions only dealing with vacant land. No legal implications to worry about. No need to hire lawyers or paralegals to help you meet government requirements.
You can purchase a valuable and quality piece of land for less than $1,000. If you do your due diligence properly and make sure that the piece of land is in a path of growth, it could be supremely attractive to future developers. You could sell that property for as much as x5 or even x10 what you bought it for! That is some easy profit!
Freedom! Land gives you the opportunity to be creative and mold property how you want. You can hold it for a lifetime and leave it as part of an inheritance. You can purchase land, save up some money and hold it for a decade, and then build your dream home! Or you can create your own golf course, paintball arena, dirt bike track, there are endless opportunities!
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