Is Owning Land a Good Investment?
Vacant land is arguably the most misunderstood real estate investment. So it’s no wonder that people are reluctant when it comes to buying raw land and often ask “is owning land a good investment?”.
As you might know, real estate investing inherently coincides with a certain degree of risk, and raw land investing is no exception. But, when done right, it can be incredibly profitable since raw land provides for portfolio diversification and better returns at fewer risks. The secret to successful raw land investing is a special blend of diligence, perseverance, and high-profit margins. Continue reading to learn when is owning land a good investment and how to determine if it’s right for you.
What to Look for When Investing in Raw Land?
You should analyze a few critical factors if you are considering buying vacant land.
Location
Since there are no physical structures that could add value, the land’s worth primarily comes from its location. Therefore, up-and-coming neighborhoods yet to be fully developed are often considered the best location for land investment. You can tell if a place is attractive by its proximity to nearby highways, schools, shops, eateries, and public transportation. Keep in mind that buying land in a remote area might also be a wise long-term investment, but if you want to make money right away, you should stay in areas with a demand for homes or businesses.
Zoning
Another crucial factor to consider when buying a parcel of land is zoning, which lets you know about any land use restrictions. Zoning can designate a space for commercial, residential, or agricultural usage. Checking local zoning regulations is therefore essential so that you avoid planning to build your dream house, only to discover that doing so would be against the law.
Potential hazards
It’s essential that you consider any risks influencing your investment. Maybe the plot of land is near a flood zone or wildfire-prone region. Or a former landowner left behind chemical risks. In either case, you should assess potential risks to see whether you can be reduce or eliminate them.
Basic utilities
Utilities are a sometimes disregarded yet essential component of purchasing land. You may not be able to construct a lovely home on the property if there’s no option to connect to the sewage or electrical systems in the area. This is especially important to check if you’re purchasing a piece of land in a remote area where connecting to public utilities might be more expensive.
Existence of easements
The property you’re buying might have easements that allow a third party to access or use another property. The third party could be a neighbor who needs to access a public road on the opposite side of your property or a business or government agency that needs access to the land to maintain utilities like power or water pipes. Whatever the case, it’s essential to be aware of easements to plan any building projects appropriately.
What Causes Land to Appreciate?
The main factor driving a raw land investment’s value increase is demand. You can expect to receive a big return on your investment if you buy undeveloped land while there is little demand and the neighborhood subsequently becomes more appealing to builders, homebuyers, or business tenants. Land demand can be driven by certain social or economic factors like increased local development, policy changes, improvements in local infrastructure, economic improvements in the area, and population growth.
What Causes Land to Depreciate?
Raw land is not regarded to have a finite life and hence cannot depreciate. However, the property’s commercial viability at a given time may be impacted by several things, including physical degradation such as erosion, flooding, wildfires, market fluctuations, incorrect use including pollution and toxic waste, and zoning amendments. That being said, the value of the land could still rise eventually if you keep it and take care of any problems.
Is Owning Land a Good Investment? Top Benefits to Know
Purchasing land is a wise investment because it has numerous advantages. First, the land is a finite resource that can only rise in value over time, assuming no severe circumstance, like a natural calamity or an economic collapse occurs. It’s also less expensive than buying a piece of property with a structure already there, giving investors a blank slate to do whatever they want. Furthermore, land offers more freedom in terms of investing. As long as you adhere to local zoning regulations, you can do as you please with it.
Is Buying Land A Good Investment For You?
Asking yourself the following questions will help you determine if investing in raw land is the right choice for you.
Would you be able to manage the risk? Even while investing in acres of land is usually predictable, there is always a certain amount of risk. Raw land investing is not a specialty you should explore if you are easily intimidated by the unknown because purchasing a piece of land is effectively making a future prediction and belief that what you’re buying will improve in value over time. Although you’ll probably be right, you should be aware that you cannot control some situations.
Have you organized your finances? Land investment is a buy-and-hold investment. As a result, it can take some time before your land increases in value enough to generate cash flow. As a first-time investor, you must conduct a thorough assessment of your financial situation. If you are naturally thrifty, it is likely that you will realize success as a raw land investor.
Will you prioritize research and due diligence? The difference between successful and unsuccessful raw land investors is the investor’s attention to due diligence and asking the right questions. First, conduct market research before investing in land. Has the area seen recent development? Is your property positioned for future development? If the aforementioned questions have a positive response, your property already satisfies the most important requirements.
Next, inform yourself about the property’s zoning. Are the plot’s borders well delineated? Is it permitted for development that is mixed-use, commercial, residential, industrial, or agricultural? What did the land previously serve for? It’s imperative to ask these kinds of inquiries and receive detailed responses. Finally, be sure to also enquire about the land’s topography, required yearly taxes, accessible public services, permitted uses, and access via road.
Is Owning Land a Good Investment: Final Thoughts
In general, owning land is a wise investment that can yield considerable returns. However, you must know that it’s a long-term investment and you may have to wait to see results. If you want a rapid payout or immediate income flow, you would be better off sticking with conventional investment properties. But, if you’re searching for a low-risk investment with a ton of earning potential in the future, make sure to contact DiscountLots and find your perfect plot of land.
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