Investing in Land: A Comprehensive Guide

The real estate sector provides many opportunities for investment. Though most investors are more interested in rental properties, homes, commercial buildings, or other types of properties, investing in land is another option.

Land investment is a very unique portion of real estate because the asset has not been developed, so how you make your income or profits from the property is open to various pathways.

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What Is Raw Land?

Raw land is a type of real estate investment that falls outside the normal practices of buying a property and renting it out or selling it when the value increases.

Raw land simply refers to any property that is undeveloped and has no buildings, utilities, or even driveways. Though it could have been cleared out of trees or other natural features, no man-made elements have been added.

Investing in land can be a risky path to income. First and foremost, raw land does not generate any income when you purchase it. Additionally, the value of that land is unlikely to increase at a rate that would allow profits at a sale. If you choose to pursue this strategy in the real estate market, you must have a plan for how that land will be used.

Types of Land Investments

Figuring out what to do with your land investment is the key to generating income. If the land is left undeveloped and you simply take care of it and eventually sell it, it will be very difficult to get a return on your investment. Land investors should also understand what type of zoning the vacant land is in so they know what land use restrictions are in place.

When you buy land, there are several options for what you can do with it:

• Commercial development
• Residential development
• Livestock and crops
• Agricultural
• Timber farm
• Mineral production
• Vineyards and orchards
• Recreation
  

Commercial and Residential Land Investments

One reason to purchase raw land is to develop it for residential or commercial properties. This would involve structures, utilities, driveways, and other features being added to the land. 

You could invest in constructing those buildings yourself, but this will significantly increase your investment since you had to pay for the land, and now you have to pay for construction. Another option you have is selling land to commercial or residential developers, many of whom will pay well for the raw land, allowing you to make a small profit. 

Livestock and Crop Land

Some real estate investors may be interested in turning the vacant land into cropland or a livestock operation. These business ventures have high startup costs and hefty ongoing expenses to run. This may not be an option for most investors unless they already have experience running these types of operations. 

Agricultural Land

This category covers a broad range of land uses. For example, timber, vineyards, orchards, and recreational land all fall under this umbrella of agricultural investments. Raw land investing for agricultural reasons can yield multiple types of businesses that will generate income for the property. 

Benefits of Raw Land Investments

If raw land is part of your investment strategy, you should know that this type of investing involves risk. However, it also comes with significant advantages when compared to traditional properties such as commercial property or residential buildings. 

Less Competitive

Although land scarcity can be a big topic among developers, purchasing land is much less competitive than already developed properties. This makes it a more accessible option for those interested in real estate investing but may not have large hoards of cash to rely on.

Low Maintenance

Taking care of undeveloped land is very easy. After all, there are no utilities to pay for or services to provide for tenants since the land is still in its (mostly) natural state. If you decide to purchase land, you can enjoy the benefit of low maintenance needs that require little energy and finances. Some of the only costs will include your loan payments and property taxes. 

Flexibility

Raw land investing is great for those who have a plan for what to do with it, but the key is that there is some flexibility. The same piece of land could be used to serve various purposes depending on what you choose to do with it. Investing in land is an attractive option because there is some freedom for the investor to decide how they will generate income.

Tips For Land Investing

If you want to buy land in the real estate market, it’s crucial that you understand what you are getting into. These land investment tips can help you get started on the right foot as you consider buying raw land.

• Research the land valuation
• Conduct a land survey
• Find out about the floodplain in the area
• Learn about obtaining mineral rights
• Get added to the local water waitlist for development
• Look into property financing for your purchase
  

How to Profit from Land Investments

The purpose of land investment is to eventually make money from it. Whether that means selling it in the future when the value has increased or developing it yourself to run some type of business, there are multiple ways that this raw land can generate a return on your initial investment.

Buy and Hold

This strategy can be beneficial, though it is much harder to make significant profits with raw land. Land value does not appreciate much if at all, so this could be a risky strategy if the local real estate market does not grow. However, in the right conditions, holding the land for a long time and then selling it could yield some profit.

Lease

Leasing is one of the most common forms of land investing that allows property owners to generate income from developers and other entities. In this case, you receive rental income from a tenant who develops the land themselves. The tenant has ownership rights over any structures or businesses that they develop while you receive income from the ground lease.

Develop the Land

Many investors who buy land have plans to develop it. This requires far more capital upfront since the land itself must be bought and then construction or landscaping becomes another expense on top of that. You could develop this land for commercial, residential, livestock, crops, or agricultural operations.
Once these businesses start generating income, you will start making returns on your initial land investment. If the current zoning of the land does not match your hopes for the property, there may be an opportunity to make a change through a rezoning process.

Subdivide

One way to profit from your land investment is to subdivide it into smaller parcels. For example, if the property you own is 40 acres, you could subdivide it into two 20-acre parcels. Maybe you choose to sell one of those subdivisions and keep the other for yourself to develop or build a house on.
You could also lease these smaller parcels to tenants, collecting rental income while still retaining ownership of the larger plot of land. You just need to research planning and zoning in your area to make subdividing work.

Best Land Investment Locations

Choosing the best land investing strategy often comes down to location. Where can you find valuable land that will either increase in value, be attractive to developers, or provide space for your personal or professional goals?

In terms of land prices, economic growth, development opportunities, and profit potential, these five states are some of the best places to buy raw land in the United States:

• Oregon ($6,503 per acre average)
• Arizona ($4,328 per acre average)
• Florida ($28,961 per acre average)
• Utah ($4,664 per acre average)
• Texas ($7,542 per acre average)
  

How to Buy Raw Land

A land investment is a little more complicated than traditional real estate investing, but that does not mean the opportunities are not there. The biggest obstacle to land ownership is usually money since investors may not have enough funds saved up to afford the total price of a parcel of land.

Fortunately, with the right lending partner, you can finance your raw land investing goals. Visio Lending helps investors who are interested in buying land achieve their objectives through various loan programs. Contact us today to find out how you can finance your vacant land purchase.