by Laura Mueller
Real estate investing is often heavily focused on physical properties. But investing in vacant land can provide major returns, and may just be one of the best real estate investments that you can make.
Unlike other types of real estate, vacant land requires minimal upkeep to maintain, and is more about investing in the right location at the right time than anything else. Of course, that doesn’t mean it’s always easy, or that all pieces of vacant land are equally valuable. So if you’re new to real estate investing and considering vacant land, check out the three vacant land investment tips below to make sure that you put your money where it counts.
Tip #1: Look (and Plan) Ahead
The value of vacant land is primarily in its potential — in particular the possibility that it may be prime real estate for future commercial or residential development. In order to hold that promise, however, the land needs to be properly zoned, with the right entitlements to ensure that your big plans for the future are actually achievable. After all, you’re not going to have a lot of luck selling your land off to a developer if they can’t actually use it.
When considering a plot of vacant land, be sure to get a full picture of what the land can and cannot be used for. Also take into account the topography and what sorts of utilities are already there versus what you’ll have to spring for. Cheap land isn’t so cheap if you’ll need to raze it and install water and other utilities before it will be appealing to buyers.
Tip #2: Tally Your Taxes
Vacant land is hardly a one-and-done purchase. You’ll have annual costs that you’ll need to factor in to your investment budget as well, and depending on where you’re buying and how long you’re planning to hold the property before you sell you may end up spending more in taxes than you ever actually bargained for. Be sure that you understand your tax commitment, and that it’s in line with your current and future financial planning.
Tip #3: Think Short Term
In general, you always want to be thinking of getting a return on your investment sooner rather than later. A lot can change in over time, and those changes could make your land less valuable. The sooner you can flip it to a new investor or developer, the less risk you’ll incur in terms of market changes and dips.
It won’t always be the case that you can turn around and sell your land, but timing should absolutely be a significant factor in your purchase decision. If you see the short term potential in a piece of vacant land and happen to have the funds to go all in, go for it. If you see the potential but it’s a couple decades off in the future, move forward with a little bit more trepidation. That’s not to say you can’t make a good long term land investment (plenty of investors do!), but that, as a new investor, it might not be the best way to get established.
Always take your time with any land investment. With a healthy amount of caution — and a whole lot of research — you can make sure you invest in land that will pay you back in dividends.
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