Is Buying Land A Good Investment?
If you have been thinking about investing your money in the most effective options, buying land may have come up on your radar at some point. The National Association of Realtors (NARS) reported an upward trend in terms of land sales and land sales prices. Traditional ways of thinking allow us to believe that real estate will always appreciate over time. However, investing in a plot of vacant land is not the same as investing in a commercial property. If the pandemic has told us anything, it is that volatility within real estate is still something to take into consideration. While investing can never be 100% guaranteed, having a plan and being fully informed will give you the best possible chance of a favorable outcome.
Points to consider
Location is one of the most important factors to consider when shopping around for new investing opportunities. To maximize return, you would want the land to reflect what it is you intent with it. That is, if you plan on constructing a commercial property, do not buy land that is isolated from potential customers. It is also a good idea to think about where you would like to buy a piece of land before you embark on your search. Consider utilizing online resources to assist you in exploring your options. For example, if you are buying a few acres of land to build rental properties, you would want to consider things like access to schools, public transit, and other amenities. Likewise, when purchasing land for commercial use, you would first consider its potential business value.
There are a few costs one can expect to incur when buying vacant land. However, the key is to spend your money wisely. It is possible at some point during the purchasing process that you will need title insurance. This insurance protects owners and lenders against any property loss or damage they might experience because of liens or defects in the title to the property. It is essentially a legal shield against any complications that could arise concerning the land purchased. In general, title insurance is not necessary during the transfer of a property. However, financial institutions that offer loans and mortgages may suggest that you buy it to protect their investments and yours.
A land survey is another potential cost you should consider. If the land has been recently surveyed, you may not need to have another one conducted. If not, you may have to hire a professional surveyor to chart the boundaries of your land, making any legal proceedings that much more smooth.
Almost everything you intend to build is going to require a permit. The entire process may seem like a headache waiting to happen. But the necessary permits help to protect the land and keep everything aligned to the regional standards, ensuring a structurally sound build. Prepare yourself for the numerous permit applications as construction progresses. This is when a professional and experienced Real Estate Investment Group partnership is key to the success of your investment. They can provide professional guidance and ensure compliance.
When purchasing vacant land, road accessibility is a point of consideration as it can pose other complex challenges. This is rarely an issue in urban areas, but in more rural centers, this increases in likelihood. Land could be cut off from major roads, which means it may also be cut off from power and or utility such as water or sewage system. You would then require a septic system and a well (both of which require permits), further adding to the construction costs.
Another issue that would then need to be tackled surrounds access. Having a public road ensures that the vacant lot is logistically accessible at all times. Things become more complex when private roads have to be structured or worked around, potentially not leveraging the land space. The ideal situation would allow for an easement, but that would require cooperation from the neighbor. If the neighbor is less agreeable, you may have to sue to prove that the easement is necessary.
What Are the Benefits?
- Entry Cost. Vacant land is almost always priced cheaper than a renovated plot, which is a key benefit to note. This slightly lowers the barrier to entry as well.
- Flexibility. Vacant land is essentially a blank canvas, and yours to do what you will with it (within the limitations of your location’s jurisdiction and zoning codes).
- Appreciation Potential. When taking a plot of land, and turning it from undesirable to desirable, the possibility of appreciation skyrockets. It is especially true in areas deemed to be major growth centers and those undergoing rezoning, which can result in price increases overnight.
- Tax Benefits. In the event that you sell a property for more than it was originally purchased for, the profit will be taxed as short-term or long-term capital gains, which are generally taxed at a lower rate than ordinary income.
How Can I Make Money on Vacant Land?
Vacant land or real estate investment can be a great source of passive income. Once purchased, you can essentially let it “sit” and appreciate it over time. Another way to earn passive income would be to find other uses for the land. Renting the space or developing it into usable space would also help to generate an income. The flexibility of income options that comes with investing in vacant land. When the land is utilized following zoning restrictions, it can be used in whatever way you see fit. Investing in vacant land is also one of the best ways to diversify your portfolio. Not only will this increase overall financial security, but it also allows you to not “put all of your eggs in one basket”.
Leave It to The Professionals
Vacant land can be a great addition to your portfolio, as it holds such large potential. However, to reap and optimize the potentials of this portfolio, it is best to study and do your research instead of going at it blindly. Similar to how you would trust the advice and expertise of an accountant or tax professional when going to do your taxes, you would want to apply the same logic when thinking about commercial real estate investing.
You want to trust your investment to professionals who:
- Study the real estate market as well as socioeconomic and demographic trends
- Look for promising opportunities in diverse asset classes
- Keep a hand in the operation and management of the properties in which they invest to help ensure their success and growth
For more information about how the investment professionals at Realty Capital Partners (RCP) can help you get the most from your investment dollars, call us at (469) 529-6024 or email us at email@example.com.