Buying vacant land for investment can be a great choice, especially if you know how to invest in land and where the best place to invest is. Land investments can mean high returns, a passive income, and large profit margins when it’s time to sell. It can also be a relatively low investment if you know where to look and who to buy from. However, like any type of investment, the success of a vacant land investment relies heavily on due diligence and research.
In this post, we discuss what raw or vacant land is, what to look out for before you buy land, and why you should invest.
What is Vacant Land?
There are three types of real estate investments:
- Residential property
- Commercial property
- Vacant Land
Vacant or raw land is a plot of land that has no construction or equipment set up that can be used for the development of commercial or residential real estate. When buying vacant land for investment, you’re purchasing untouched and undeveloped land. But you must also rigorously review the zoning rights of raw land to see exactly how the land can be used for future development.
To many people, it may not seem a good idea to invest in land without urbanization. However, this type of real estate investment is a good choice for those who don’t want to invest a lot of money to begin with. It’s nevertheless important to note that not all investment lands are the same.
Some land investors don’t intend to build on their investment lands and look at selling them once they increase in value. So it’s essential to consider the location and its future growth plans if you decide to take this path.
Other land investors buy land to develop it themselves. It can most certainly be a costly and time-consuming process, but the rewards at the end can be lucrative. If you’re buying raw land in a privileged location – and intend to sell on – checking the zoning rules will be an inevitable and crucial part of the process.
What to Consider Before You Buy Vacant Land
Vacant land is one of the most underestimated real estate investments out there. There are many benefits that come with owning land in its raw form – but only if done correctly. Like with any investment, there are factors to consider carefully before you spend your money.
1 Zoning Rules and Long-Term Development Plans
Nothing quite gets in the way of developing land like zoning issues. Before you buy land, be sure to visit the local zoning and planning department to see what the long-range general use plan is for the area surrounding the plot. Would you want to build on vacant land or resell it in the future only for it to be neighbors with a power plant or major highway?
The general use plan will detail what the permissible use of the land is and what the future holds for the local area. If you can’t decipher it yourself, a county planner will be able to help you. It’s vital that you check future plans for the construction of anything that can affect your investment.
You also want to find out what the zoning classification is. Is it residential? Commercial? Industrial? Agricultural? Ask the local zoning and planning department for some examples of what type of property is possible within the lands’ zoning classification. Maybe it will give you an idea of something you hadn’t thought of that could benefit your investment. Even if you don’t intend developing the raw land, it’s important to know what the rules are before you buy vacant land for investment. That way, you will understand how someone else can use it. And this will help you avoid owning land that won’t be profitable to resell or lease down the line.
2 Access to Vacant Land
A major factor to consider is how you will get onto the property? If the land is located on a public road, there’s no problem. However, if you purchase land in rural areas, sometimes the only access to a piece of land is over someone else’s. You will need an “easement” or your plot is considered landlocked. Before you agree to buy the land, you should ensure that a right-of-way easement is granted, in writing, by one of the surrounding neighbors. If there’s no existing road, you’ll also need to factor in to the overall buying price the cost of adding one.
3 Public Utilities
It’s easy to take access to public utilities for granted. Things like a sewage system and running water are not always a given when buying vacant land. As a land investor, having access to common public utilities increases the overall value of the land when you come to resell because it makes your land an ideal candidate for future constructions.
However, if you decide to buy raw land that has no utilities, be sure to gather estimated costs on any work that would be needed before you sign a purchase agreement.
4 Annual Cost of Property Tax
If you decide to buy and hold the land long term, you’re responsible for paying annual taxes and maintaining the property as required. A reasonable annual tax bill is usually in the range of 1% to 4% of the property’s full market value. Be aware of these costs as it will be your obligation to pay them for as long as you own the land.
5 Topography and Flood Zones
Before you purchase vacant land, it’s essential to do some preliminary research on the geography of the land and surrounding areas. You can do this using Google Earth. Search for the location of the land and zoom in using control/command and shift keys. This will let you see the earth tilt and pinpoint any hills and valleys in the area. There are a lot of places in the country that have irregular elevations, cliffs, mountains, and valleys, which can have a major impact on the usability of a piece of land.
In addition, it’s crucial to see if the land is in a flood zone. For example, the land might be near a body of water that has a high risk of flooding. This can be extremely expensive to insure against. Of course, some land located near a body of water can be very desirable and valuable! You simply need to consider that close proximity could cause some potential issues.
Consult Professionals When Buying Vacant Land for Investment
Buying vacant land for investment can create a steady and passive income if you buy and lease it. Or it can provide large profits when you flip the land. Either way, it makes a great addition to your portfolio. And it’s a powerful investment strategy, as there are so many ways to make money from your land.
But before you become a landowner, it’s important to carry out thorough research and due diligence to find out if the land is worth investing in. In the same way you’d trust the advice and expertise of an accountant or tax professional when you do your taxes, you need to think about consulting real estate professionals when thinking about land ownership.
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 firstname.lastname@example.org.
Schedule your consultation today and invest with us!