Is Buying Land a Good Investment?
Buying land in 2022 is one of the most sound investments one can make. Whether the purpose for the purchase is to build a home, start a business, or save it until the value increases, it’s generally a safe bet if you do the research and follow a few rules along the way.
Consider the following information to help assist with purchases and ideas for making the most out of land purchases. This guide is a resource to help you learn more about the process and why this investment strategy works for many across the country.
Buying land is a time-honored tradition globally and for a good reason. People with land have plenty of opportunities to build on it or hold on to it for investment purposes. There are, however, a few things to know about buying land before getting started.
As with any investment, buying land can pose some potential risks for losses or other issues. The best method to avoid these problems is to thoroughly research the land and the area and estimate value growth and potential. Keep in mind that zoning laws greatly affect the potential of the land and its future value.
Areas with commercial and residential zoning may offer the best investment because the use for the land is very flexible and can offer a suitable place for a home or a business. But always do your due diligence before you commit to buying a property.
Visit a property that interests you and inspect it carefully. In fact, it’s a good idea to hire a professional inspector. You’ll want to consider factors that may, for instance, prevent a homeowner from purchasing this type of land, such as the surrounding traffic and noise, or suboptimal access via dirt roads.
How to Buy Land
One of the first things to do when attempting to purchase land is to determine a budget. Be sure to also leave some room for fluctuations in the budget because there could be unanticipated costs along the way. Keep in mind that some costs you’ll face can include the following.
- Closing fees
- Realtor fees
- Land purchase price fluctuations
Research how to buy land to ensure you get the most recent and helpful information in preparation for a purchase. It’s also beneficial to know how to buy vacant land and learn more about the process. You may even consider buying land with a credit card.
Types of Land Loans
When potential land buyers need to obtain a loan from a traditional lender such as a bank, they need to keep in mind a few things related to getting a loan. First, there are three types of land loans to pursue, and they include the following.
- Raw land loan
- Unimproved land loan
- Improved land loan
The raw land loan is for a blank slate piece of land with no electricity or improvements. Keep in mind that this type of land loan is notoriously difficult to acquire, so it might take some time to find the right one.
The unimproved land loan is for properties with a few amenities in place, such as water and electricity. Although not as difficult to obtain as a raw land loan, this loan may still prove tricky for land buyers.
An improved land loan is a plot of land with features such as a road, electricity, water, and other features. These loans are usually easiest to obtain but require a higher down payment due to the risky nature of land loans in general.
It’s recommended to purchase land with cash if possible; however, many people don’t have cash lying around. That’s why most will need to get a loan for buying land. This process is pretty much the same as getting a loan for a home; however, there can be a few differences.
Especially for commercial and agricultural properties, you’re typically looking at a fixed interest rate for only a few years, after which the rate becomes variable. This can lead to more financial exposure than you want if interest rates go up.
Buying Land Cheap
One of the best ways to buy land for cheap is to research foreclosures in the area. Banks and lenders don’t want to hold onto land, so they are often willing to part with it for a bargain if you have cash.
Also, it would be worth considering land in rural areas where there seems to be some urban spreading or potential for subdivisions and neighborhoods to pop up over time. There are places across America where land is extremely cheap and could make a sound investment for the future as populations increase and land is necessary for builds and homes.
But, do your due diligence. If you are buying a piece of property on the expectation that droves of people will be moving to the area or some big business or industry is poised to start operations there, be sure that it is a done deal. Environmental concerns, for instance, have derailed many promising developments and business projects that were not fully nailed down.
Another way some get a great deal may be through a process called land hacking, in which a portion of the land serves your personal use and the rest is rented out to help cover the land’s cost. Although it’s controversial, it may allow for a purchase that in effect is way below the property’s actual value.
What to Know Before Buying Land
You’ll need to have an adequate amount of money on hand for a down payment before you get started. If you buy in certain areas, there may be fees associated with the purchase, so research before buying. Next, you’ll need to know how the land is zoned to know what potential the land has for increasing in value.
Is Buying Land a Good Investment?
People want to know what a good land purchase entails and is buying land a good investment for their needs. The value of land varies greatly, and some may want to know whether or not it is a good investment when the answer isn’t simple. Some land has great value, while other parcels may not increase much over time. There are a few factors to consider.
For example, farmland may be very valuable, while undeveloped waterfront land may not be worth much because of frequent flooding.
How to Invest in Land
If you want to invest inland, you’ll first want to find some suitable land options in the area. You could work with a realtor to cut down on research and guesswork, but you’ll owe them a commission that may exceed the normal commission for a home purchase. Consider investing in the following.
- Invest in farmland
- Buy land to start a campground
- Land Flip
Learn more about investing in land by researching online and attending seminars from professionals with good insight. You may also want to consider how to start a campground for residual income over time. If you want to learn how to invest in land and make money, consider investing and reselling later or even have it available for multiple uses for a fee such as parking, camping, fishing, or shooting.
When you buy land, it comes with liabilities. Land is not like a toy that you can put in a closet and forget about. You’ll be paying taxes each year on any land that you own. Know what those taxes are and what they are likely to be down the road.
In regard to taxes, ag (agricultural) land is always the best, which is usually just a few dollars an acre. That same acre, if zoned for commercial or residential, can cost you many hundreds or even thousands of dollars annually. As a result, it can be great to buy a commercial property that gets treated for tax purposes as ag until it gets developed.
Besides keeping track of taxes, you will probably need some insurance to cover your exposure in case anybody goes on your land (even as a trespasser) and gets hurt.
Lastly, be advised of any environmental hazards associated with the land you may be considering buying. Someone may offer you a piece of land for what seems like a ridiculously low price. If you accept the price and buy the property, you may be faced with an environmental clean-up that you can’t offload to anyone else. (Compare buying a house with asbestos.)
So, always do your due diligence. Better to spend a bit more money at the start to make sure that you’re not taking on someone else’s headaches.
Adam Smith has spent the last 5 years in the Private Money Lending world helping real estate investors secure financing for their non-owner occupied real estate investments. When he’s not thinking about real estate, Adam is an avid Jazz music fan and fisherman.