Famous U.S. land barons have increased their fortunes by owning millions of acres across the country. But the Great Recession of 2008 also demonstrated how volatile land values can be.
Is buying land a good real estate investment? It can be if you're a smart investor with a good strategy ready to perform due diligence.
Best Online Platforms for Investing in Land
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Simply Put: Is Buying Land Risky?
To understand the risk of land investing, let’s take a look at farmland ownership. In 2009, the recession stopped commercial and residential developers from seeking agricultural land to convert into new housing and commercial developments. Consequently, the value of farmland dropped by 3.2%.
The decreasing land values prevented a lot of farmers from borrowing on equity to pay for the next growing season. This caused some farmers to default on their mortgage loans. The risks of falling land values and shifting market conditions can have a devastating domino effect on all land investors.
Fast forward to today, land values have increased from $2010 per acre in 2007 to about $3,380 per acre in 2021. Many long-time farmers realize that the accumulated equity from their land can financially sustain them more than shrinking farming profits. So, many farmers — who survived the 2009 debacle — are retiring their plows and selling their land.
Essentially, investing in land is risky. But the financial rewards can be worth it for the right investor.
How to Buy Land for Investment
Before you start looking for land to buy, you must determine how you plan to make money from it. There are several ways to invest in raw land. Your choice depends on your goals, limitations and involvement level. The following methods are the most popular.
Buy and Hold Land
If you spot an area that shows signs of growth, buying vacant land in that area could be very profitable in the future. This is the main benefit of the buy-and-hold strategy. It gives you the opportunity to buy land around its market value with the intent of waiting to take action when its market value goes up. You can either sell it, lease it or develop it.
Land flipping is a simple buy-low and sell-high technique. The goal is to buy undervalued land for a cheap price and sell it at a high price. Unlike the buy-and-hold strategy, the motivation is to sell only. Also, the time between actions is generally much shorter.
The challenge is finding undervalued land. This can be tricky. Sometimes a seller may list some land at a cheap price because of a serious problem. The soil may be unsuitable for supporting structures — or the land could be in a fire zone. It could have high levels of radon or other contaminants.
Also, you can buy land at market value and profit from emphasizing its entitlements before the sale. Land entitlements include zoning rights, development rights and subdivision rights.
You can put a car wash or an apartment complex on your land. By owning the land, you’ll never worry about an owner not willing to renew your lease. Making your land an income producer can increase its value.
However, developing land can be expensive — it can drag on for years. While scouting for land, you must consider zoning laws and the location of your plot. Count on your project being illiquid for several years.
Buying Land to Lease
Buying land to lease can be a good way to create passive income from monthly rental payments. Some land investors use a strategy many multi-plex investors use. They lease a portion of the land to offset the expenses, taxes and interest cost. A problem could occur if the tenant develops the leased land in a way that’s not consistent with your plans.
The upside of investing in land can be great. You can increase your chances of being on the winning side of land ownership by considering these influencing factors:
- Existing federal state and local laws concerning your land interest
- Current and future demand for land in that area — identifying a growth path
- Water, electricity, septic and other utilities related to the potential use of the land
- Laws regarding public access to the land
- Owner rights to cross someone else’s property to enter or leave the property, or ingress and egress rights
Now, you are ready to shop for land. Foreclosures auctions, public tax sales and estate sales are good places to start. Most of the time, organizers of these sales just want to unload these properties for as much as they can get. You can find some very good deals this way.
Online industry websites are a good source to find land for sale. Many of the listings on these sites have professional quality video presentations.
Check out these online land marketplaces:
- Land.com: This website is the largest online marketplace for buying and selling land. It claims to have 9 million monthly visits to its network of sites — Lands of America, Land and Farm and LandWatch.
- Lotnetwork.com: This site lists over 460,630 lots and land nationwide. Also, Lotnetwork connects you to online land auctions.
- Landflip.com: Landflip lists land for sale, lease and for sale by owner — no brokers. To help you narrow your search, it allows you to create a buyer profile.
Can You Invest in Land Online?
A growing number of online real estate investment platforms give passive land investors an opportunity to invest in farm land. You can also invest through land exchange-traded funds (ETFs), land mutual funds and stock in companies that hold land. Investing in land through these securities can save you the legwork and lower your risk level. But you still must do your homework.
Some of the best online investing firms are Interactive Brokers and Webull. Both offer $0 commission trades for ETFs and stocks. These firms provide all the research and trading tools you need to start trading land securities.
Advantages of Land Investments
Buying land has some distinct advantages over other investments:
- Land is an easy purchase: Land deals are usually private sales. You normally don’t need to go through a credit check or fill out a lot of paperwork. The average price for undeveloped land is $3,380 per acre and $4,442 per acre for farmland.
- It’s a buyers' market: Most investors are shopping for fully developed, ready to use property. The light competition gives you a better opportunity to find some good deals.
- It has low maintenance: Raw land doesn’t have a property to manage or renters to deal with. You just pay your property taxes and may have to check for squatters every now and then.
Disadvantages of Land Investments
Every form of investment has its pitfalls. Investing in land is no different. These are 3 aspects of the market you should be aware of:
- Low liquidity: Unless you’re planning to lease or flip your land, your money could be tied up for some time. The sales volume is typically low. It may take much longer than you think to sell it.
- Meager tax breaks: Raw land investments come with very little to depreciate. If you buy the property with a cash deal, you won’t have a mortgage interest deduction.
- Permits and building approval headache: Your local zoning laws dictate what you can do with your property. Sometimes the approval process for your project can be long and arduous.
Why You Should Think About Buying Land
Buying land is risky. It can be illiquid for long periods. There is a chance a down market could rock your plans. However, there’s a strong upside.
Depending on your land investment strategy, your land investment could bring you substantial returns through increased property value or annual rental income. Take a look at the new online platforms that open land investment to a greater audience. You can get started in real estate investing and land ownership without assuming all the risk on your own.
Frequently Asked Questions
Is it smarter to buy land or a house?
Buying land can be a smart investment if you plan to develop it or hold onto it for long-term appreciation. It provides flexibility and potential for higher returns. Buying a house can offer immediate rental income or the possibility of living in it while it appreciates in value.
Is it better to have money or land?
Having money can provide immediate financial security and flexibility, allowing for various investment opportunities, purchasing assets, and meeting immediate needs. On the other hand, owning land can provide long-term stability and potential for appreciation. Land ownership can offer opportunities for building wealth through real estate development, rental income, or farming.
What are some excellent avenues for buying diversified land holdings?
Publicly traded companies such as mutual funds, REITs and ETFs hold a basket of land parcels and are more liquid.
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