How Does Owning Land Make Money? Top 4 Ways
Real estate investments are an excellent method to increase wealth and diversify your portfolio. Unfortunately, some hesitate to invest in raw land due to false assumptions or a lack of knowledge. However, there are numerous benefits to owning land, and you’ll see excellent results if you’re willing to invest the time, patience, and money.
Like with any other good investment, there are some key strategies to help you make the best vacant land purchase decision. But first, you’ll need to comprehend how does owning land make money and be able to identify hidden risks and the potential of each.
Buy and Hold Onto the Vacant Land
Because of inflation, appreciation is one of the main ways to earn money from investments in an undeveloped piece of land. Undeveloped land can be purchased and held onto for a profit, especially over the long term, as the price of land today has the potential to increase in value over the future years.
Choosing the appropriate market area is crucial if you want to implement the buy-and-hold strategy. You must choose a location with a promising rental market and property appreciation for a buy-and-hold property to succeed. So, before settling on a specific region, thoroughly analyze the market and its potential advantages and disadvantages.
Develop the Parcel of Land
Raw land investment can be transformed into various things, including residential, multifamily, or even commercial property, depending on the region and zoning laws. Developed land has some of the highest return on investment margins and obtaining permits, receiving entitlements, and adding utilities are some of the ways to increase the property’s value.
As the entitlement work is finished, this is comparable to the idea of a fix-and-flip with houses as it saves the potential buyer time, money, and risk. In return, your profits could exceed five times your initial investment, depending on your exit and financial strategies. Finding a partner or a company like Discount Lots may be a wise choice to hasten your learning and help you avoid being overwhelmed by the general concept of getting into land development.
Subdivide a Big Parcel of Land
Subdivision is a relatively easy technique to add value to undeveloped land. This is a common money-making strategy for large plots of land. Landowners typically subdivide their property to increase its value and sell off a section for profit.
A land subdivision allows you several options. For example, you can keep a portion of your land and sell the rest to one or more buyers by subdividing your property. Additionally, subdivision boosts marketability. Because the smaller subdivided properties will be more fairly priced, it will be simpler to sell them. Additionally, they save a potential buyer the time, hassle, and risk associated with larger ones.
Understanding the current zoning and maximizing the number of lots you can build are the keys to successful subdividing. Be sure to evaluate the market, check for any restrictions, and hire an engineering or surveying team before applying for land subdivisions.
Lease the Land
A land or ground lease enables people or businesses to rent land instead of buying it. Depending on the zoning regulation, raw land investment can be leased for different uses such as farming, ranching, or putting up billboards or cell towers.
Land leases can provide a lucrative road to profits in the real estate sector because you can benefit financially from a dependable, long-term passive income without giving up ownership of the property. In addition, depending on the lease agreement, you could become the legal owner of any improvements made on the land once the lease expires.
How To Evaluate Your Raw Land Investment
Your hunt for the ideal plot of an undeveloped property will ultimately be guided by the money-making strategy you decide on because each type of investment will need different qualities. Therefore, before you agree to sign on the dotted line, go over the following questions:
Where is the plot located? The viability of a raw land investment depends on its location. The property might be large in acreage and reasonably priced, but if it’s off the grid, there might be better investments for your planned residential building.
What are the zoning regulations? A property’s zoning specifies what you can do with it. Land can be rezoned, although doing so can significantly slow down your investment deal.
Are any utilities available? Before closing, it’s essential to ascertain what type of utility resources are offered at the property. Are there electrical or water lines? What about telephone lines? These elements may affect the final price of the contract and the projected project duration. The reason is, you could have to wait for utility companies and pay hefty connection fees.
What is the history of the land? Conduct a title search when buying real estate to examine the land’s title history to see if there are any ownership disputes. Pay close attention to how long the current owner has possessed the property.
Are there any other issues with the area? It’s a good idea to hire a land surveyor to look over the property before making an offer on a raw land investment. The property lines will be verified by a land survey, which will also reveal potential limitations. The area might, for instance, be in a defined floodplain. This could significantly impact the deal’s potential profitability depending on your ambitions for the land.
How Does Owning Land Make Money: Final Thoughts
When done right, owning land can help you make long-term profits. Depending on your investment strategy, you can gain extra income from renting the land out. Also, selling a portion of the property, holding onto it and seeing its value appreciate, or developing it yourself.
The most important thing is that purchasing undeveloped land is no longer a complex process. There are rural properties available all around the country. With Discount Lots, you can easily find the right one for you. We offer land parcels at affordable prices and flexible payment terms. We aim to help you make a wise investment with a high potential return on investment!
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