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Pros and Cons of Land Investments

Investing in land may seem to be easy. People make money every day buying and selling raw land, but those successful land investors do their homework and probably learned some important investing lessons the hard way.

There are some important pros and cons to consider before signing a check at a closing.

Pros

  • The land will be purchased and sold “as is”. No repairs or renovations are needed.
  • There are no tenants, no late rent payments, no legal fees for evictions, no holes in the wall.
  • Raw land owners are, by definition, absentee owners. Statistically, they are motivated sellers because their land isn’t producing income and they don’t know how to maximize the potential of the land.
  • There is little or no competition for raw land, so being the only prospective purchaser is a huge negotiating advantage.
  • Most land purchases are for cash, eliminating the need for mortgage lenders.
  • It doesn’t take a lot of money to get started.
  • Raw land can be effectively bought and sold without ever stepping foot on it by using the phone and the Internet.
  • Create passive income from land by financing qualified buyers. Most banks won’t lend for vacant land, so it’s possible to charge a higher interest rate to an eager purchaser.

Cons

Most cons associated with land investing are primarily related to a lack of research. Prepare a checklist of every possible negative for a piece of raw land and use it to evaluate any potential investment. Many will not apply to a contemplated investment, but being thorough and organized is the key to successful investing.

  • Find out why the land is vacant. Many people have lost money by buying land and then discovering that it could not be developed.
  • If the property’s zoning will not permit the land’s highest and best use, it’s not a good buy. In order to be resold at a profit, the land must be able to be developed.
  • Is the property too rocky or hilly for building? Use Google Earth to investigate the topography.
  • Are the taxes too high? Anything higher than 4% of the market value is a red flag.
  • Lack of utilities (water, electric, sewer, phone, etc.) is a huge negative for anyone wanting to build.
  • Landlocked properties or oddly shaped properties should be avoided. Required building setbacks could make a narrow plot worthless.

It’s entirely possible to earn a substantial income by buying and selling raw land. Many plots of undeveloped land can be purchased for the cost of one developed property. The key to success is to thoroughly research any potential land investment before committing to a purchase.