Investing in real estate has a lot of advantages, and there is a lot of potential in the markets at pretty much any point in time. But what about investing in the land itself?
Investing in land is a little different from investing in real estate and can be beneficial to a different kind of investor, even one that wouldn’t traditionally consider investing in real estate because of the high work requirements.
Here are some of the key things you need to know about investing in land, from the reasons you should consider investing, what you need to know about the land you’re considering buying and the market it’s in, and the core advantages that make investing in land a good idea for many investors.
Why You Should Consider Investing In Land
When we think about investments there are generally two kinds of investing, we think about, short-term investments, with quick turnarounds and typically lower profits, and long-term investments, which often generate greater profits, but it takes longer to get there.
Land investing is a little different. Buying raw land might lead to short-term investment, especially if a developer approaches you with a good deal to buy that land, or it might be a long-term investment that you either work on to improve the value over time through development or that you allow to appreciate while you wait for the right opportunity to sell.
Regardless of what kind of land you’re buying, or which kind of investment you’re looking for, buying land has some significant advantages.
For one thing, land is a limited commodity, and there will almost always be demand either for the land itself or for the natural resources on it, sooner or later.
Land is also a low-effort investment, and can be used as collateral for other investments, or as a safety net that you can sell if you ever find yourself in economic need.
There are a lot of reasons to consider investing in land, and every investor’s reasons are going to be a little different. But land is almost always stable, generally increases in value, and can be utilized as a means of generating profits in a lot of different ways.
What Do You Need To Know Before Investing In Land
While there are a lot of reasons that you should consider investing in land, there are also risks, just like any investment.
Buying the wrong property may make it difficult to turn a profit, and buying land that lacks natural resources, appeal, or proximity to areas in development can lead to a dead-end investment if you don’t know how to market that land appropriately.
One of the best ways to avoid purchasing land that isn’t going to be a good investment is to know what you’re buying, why you’re buying it, and what the market for that kind of land investment looks like.
There’s a big difference between buying an empty property that doesn’t have a lot of development or farming potential and buying a lot with the right kind of soil to turn into a vineyard, as an example. But not every investor is going to have the knowledge they need to tell the difference.
So, here’s what you need to know before you invest:
- The value of the land without any alteration
- If the land is in a high-demand area.
- Has the land gotten developer interest before?
- Does the land have known natural resources, like good pastureland, timber, or mineral deposits
- If the land is suitable for development, is it suitable for residential, commercial, or industrial development?
- What is the land market doing in that area? Are you seeing trends of increasing or decreasing demand?
- How accessible is the property? Will it be prohibitively expensive to install utilities or build an access road.
- What property rights come with the land? Water rights, mineral rights, and other kinds of land rights can dramatically increase or decrease the value of a property depending on what you’re able to get.
One of the things that investors should always consider when they’re debating whether to invest in land or not, is that land investment is almost always a speculative investment. You’re using your knowledge of the land and local market to decide whether the property has the potential to be valuable, likely without knowing all the potential factors determining the overall value of the property.
That said, if you do have the skills and knowledge needed to make good evaluations of different kinds of land and land purchases, these kinds of investments come with a lot of important advantages.
Advantages Of Buying Raw Land Over Developed Properties
One of the reasons that many investors stick to developed real estate properties instead of investing in raw land is that developed real estate is less speculative. The real estate has an established value and a specific, often pre-determined purpose. That means there is less research involved, and usually a set path to making that investment a profitable one.
That said, land has its own advantages, even though they are different from developed property. Here are just a few of the key advantages that come with investing in land.
Land Ownership Is Usually Low Effort
One of the benefits of owning land is that you don’t actually have to do anything with that land right away. Many land owners wait to be approached by interested buyers rather than actively trying to market or flip their properties.
That means that this is a low-effort investment, one that you can make and almost forget about until there are opportunities worth the time and effort it takes to explore them.
It’s Generally Easier To Buy Vacant Land
Vacant land also generally doesn’t get a lot of competition and comes at a lower cost that properties of similar size that have already been developed.
Even if you don’t get know what you’re going to do with a parcel of land, it’s going to cost less and be easier to purchase than almost any other kind of real estate.
Land Is Less Expensive Than Developed Properties
Similarly, raw land is almost always less expensive than land that’s already been developed and built on. Even land that has pre-existing utility hookups and other advantages is still going to be cheaper than the same amount of land with even just a single rundown building constructed on it.
That means that buying raw land can be a lower-cost entry point for certain kinds of real estate investors, or a way to diversify your existing portfolio without having to pay as much as you would for a second home or rental property.
Fewer Overhead Costs And Fees
Land purchases also have fewer hidden costs and fees for you to worry about. For instance, you won’t need to worry about getting the land inspected, or paying for insurance on it if you choose not to.
That means that you have fewer costs to consider and the listed price is going to be a lot closer to the actual final cost of the land.
Fewer fees also means that you’ll be able to keep a greater percentage of the profits, if, down the line, you decide to sell the land to someone else.
Raw Land Has Fewer People Competing To Buy
Not having a ton of competition might make some investments sound less appealing, but in the case of land investment this is actually a big bonus.
For most developed properties there is a lot of demand, which means a lot of competing offers and people trying to go the extra mile to make their offer the one that gets accepted.
Whereas, if you see a likely piece of raw land you want to buy, you may well be the only person putting in an offer on that land. That means that you have more negotiating power as a buyer and can often get a better deal without having to work too hard to get it.
You Can Easily Hold The Property Until The Right Opportunity Comes Along
Another big advantage of land investing is that you don’t need to flip the property or immediately get tenants in order to make a profit or even to save yourself from a potential loss.
Instead, you’re free to hold the land for however long you want or need to in order to turn a profit.
Raw Land Can Quickly Become A High-Demand Property
Another big advantage of investing in land is that land can almost always increase in value, and certain conditions will lead to rapid appreciation of the land’s value.
For instance, if a developer is looking to build a new housing development and you happen to own some of the land they want to use, the value of your land will likely increase immediately.
Similarly, discovering mineral wealth, oil, or other important natural resources on your land can also increase its value considerably.
Land is also naturally scarce, which means that, at some point, almost all usable land is going to be in-demand. The higher the demand, the higher the value will climb.
Thinking about getting started investing in land? Teifke Real Estate has the expertise you need either to help you find the perfect property, or to consult on your real estate investing journey and help you find success.
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- Chen J. Speculation: Trading with high risks, high potential rewards. Investopedia. https://www.investopedia.com/terms/s/speculation.asp. Published October 2, 2022. Accessed December 20, 2022.
- khan DS. Top 10 reasons why you should be investing in land. LinkedIn. https://www.linkedin.com/pulse/top-10-reasons-why-you-should-investing-land-dr-shamim-khan/?trk=public_profile_article_view. Published March 25, 2022. Accessed December 20, 2022.