You might have come across many comparisons between an asset (gold and equity) and a land class investment. Though there are plenty of realty investment options, pro investors prefer investing in raw land or plots due to higher returns on investment.
Land investment is perhaps the top leading investment option as it is an easy-to-buy property type. With higher ROI, land investment also offers lower maintenance costs and better resale value. Plus, it comes with tons of other benefits for investors looking for consistent profits.
However, experts suggest undertaking a thorough evaluation before jumping into the deals. Like other financial products, land investing also has a few important cons to consider. They may vary from inapt tax provisions to limited availability of the land.
Before you sign the deal, it is better to know the pros and cons of this investment option to make an intelligent, informed decision.
Raw Land: What is it and What Makes it a Good Investment
A piece of land that is undeveloped or unprepared for any construction is called raw land. Raw land is an untouched terrain. It has become one of the popular options among investors. While land investment lacks subdividing and grading, many real estate investors consider it an excellent option to expand their portfolio and maximize profits.
You might find investing in the land counterintuitive as it requires knowledge and more patience on the part of the investors. Plus investing in the land needs long-term strategies on how you want to sell the land.
Essentially, there is a wide variety of reasons experienced investors consider land investment worth the money. Mainly, land investment is a blank canvas for people with the foresight to generate profits. However, there is no denying that a raw piece of land can be developed into anything as an investor you see the right fit. Perhaps this is why investing in land is synonymous with consistent appreciation and cash flow.
In short, land investment is a raging trend in the real estate industry. It offers real estate investors many chances to grow and generate a consistent income in the long run.
How Does Land Appreciate?
Objectively and categorically, raw land is an appreciating asset. This is because it has increased demand but limited supply. Plus, a finite amount of land has yet to build upon. Both these reasons make raw land an attractive commodity in the real estate world because the population increases exponentially with the high demand for raw land.
The basic economic principle applies here. The raw land appreciates due to the high demand for the limited asset. As a result, the value of raw land appreciates over time, making it a profitable investment for the investors.
Land Investing Pros
Though not all land hold equal value, there are many reasons that make land investing tremendously advantageous for you.
Simpler than General Real Estate Investing
Buying land through a reliable source that can sell to you right away saves you from dealing with the hectic and complicated real estate processes. In addition, you can invest in land that has not gone through any improvements.
Buying or selling a piece of land as-is means you can avoid loans and permits like in regular real estate investing. It works well for both land buyers and sellers looking for a quick and reliable solution to make an investment or sell their land.
Buying a Piece of Land Can be a Long Term Investment
Many benefits change the way you perceive land investment. For example, many investors consider raw land the “golden child” when investing. When you complete the purchase process, you can have peace of mind that no one can steal or destroy it.
Moreover, raw land typically remains in the same condition and appreciates. It can add financial security to your portfolio. Pro real estate investors recommend land investment for secure future development.
For instance, you can build a plaza, complex, or another type of housing on the land. You can sell or flip the land to make more profits. There is no need for maintenance, and you can sell the land when the price and demand are higher. That is to say, land investment gives you peace of mind and is worth it.
Easy to Buy
Yes, you read that correctly.
Buying a piece of land is comparatively easier than most housing alternatives. For example, you don’t have to deal with tenant evictions or manage contractors to fix repairs or renovate. In addition, there is no need to wait for transferring titles as it is faster than lot purchases and other alternatives in real estate.
What is more? One of the top variables that make land investment an intelligent decision is that it typically involves less money. Not all empty lots are cheaper compared to apartments or flats. However, purchasing land costs you less money than buying land with a structure due to little to no up keep needed.
Did you know land investing faces less competition than commercial and residential real estate investing which is a flooded market filled with competitors.
If you’re looking for opportunities to get into the real estate business but are worried about competition, land investments can be the right option. Plus, there are many good deals in land investing that can boost your investment portfolio. First, however, it is essential to do some homework or learn how to invest from reputed platforms.
Customizable for Future Use
One of the most prominent benefits of purchasing land is the option to customize the land for multiple uses in the future. For instance, if you’re planning to start a new business such as agriculture, poultry farm, or build a house, you can use the land for that purpose.
In addition, land investors can sell the piece of land to developers for commercial or residential development. They can begin a joint venture contract with real estate developers. This is an excellent way to have an exit route while also attaining a profit share through newly constructed units.
Make What You Like
One of the best and highest uses of owning raw land is that you can sell it to the developers when there is a high-rise in the cost of modern structures. Therefore, it would be best if you determined the feasibility of creating the best and most profitable use of the land with the most productivity. A land with no structure is simpler to sell.
Regulations are a part of every type of real estate, including land investing. Every state has their own real estate regulations, which are regulated by the state government. There are few federal laws, such as the federal fair housing act which prohibits discrimination in real estate transactions based on race, religion, sex, or national origin.
It is important to be aware of regulations in the state in which you are interested in investing, especially limitations of land use, ownership rights and property disclosures.
Digitization of Land Records
State governments have undertaken a massive initiative to digitize land and map records. It has proven to be a positive intuitive for land investors. It brings more clarity and transparency to the buying and selling process. As many records are in the vernacular language or recorded in archaic systems, this digitization process has enabled easy translation for land records. The simplified approach to access land records has improved the attractiveness and demand of land investment.
Cons of Land Investing
Limited Amount of Land
As mentioned above, the supply and demand dynamics of land are one of the major concerns in the real estate industry.
While land demand is growing, supply is on a downward trend. As infrastructure and population are in full swing, there is a sharp fall in land availability. As a result, it is hard to find a good piece of land in metropolitan areas.
This is one outskirt ensuring the land availability in the limited form. But unfortunately, that means if you want to buy a plot in the central city, you must do a significant amount of research to find a good deal.
Reselling land may get complicated sometimes. As the value of the land appreciates at a higher and faster rate, it isn’t easy to find a buyer willing to pay the price. It is often a challenge for novice and inexperienced land investors.
Compared to several other financial products like mutual funds, gold, or recurring deposits, you cannot immediately dispose of the land to get the cash. Finding the buyer may take months and years when you don’t have suitable sources. Moreover, it sometimes defies the actual purpose of investment.
Plots and raw land are vulnerable to encroachments. There are many cases in the US where authorities confiscated land illegally. The term refers to the violation of property rights. For example, suppose someone in your property’s neighborhood intentionally builds or extends a structure to your land or plot. In that case, it is hard to deal with.
This might be a risk for the investors planning to invest in land and plot without any research. Of course, investors can report the case and hire a lawyer, but it may involve high legal costs. However, it doesn’t mean you should drop your idea to invest in the land. You need to pay attention to the ownership details for at least 20 years, especially if you’re buying agricultural land. This is because the government can take your agricultural land for any commercial project or infrastructure development.
Land investing is beneficial for both novice and seasoned investors. Still, you must weigh its pros and cons before you plunge into it. This article has elaborated on the key advantages and disadvantages of land investment and how you can make the right investment decision. Remember that being informed and educated about how to properly land invest is crucial to success.