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Land Investments vs. Real Estate: Making an Informed Right Decision

Real estate has created more wealth than any other form of investment; than any other category, anywhere, ever! But the truism of real estate holds true for investing: location, location, location. Of course, there are no guarantees with any investment, but knowing what to look for and what to avoid are the first steps to making informed decisions. When investing in real estate, there are two main options to consider: whether to purchase existing property or undeveloped land. The correct choice may be the difference between a profitable investment or a financial disappointment.

Purchasing Real Estate

There are benefits to purchasing existing homes or businesses. The property is already developed so immediate income is possible. There will be a record of how the business has fared over time, or how comparable homes in that area are selling or what their rental potential happens to be. There are also concerns that every investor should be aware of before they sign any papers:

  • High-profile property will already be at its peak and could take years to appreciate in value.
  • Some rental properties are consistently vacant, making them an expensive risk. Without constant income, the cost of upkeep could eliminate any profit.
  • Fixer-uppers and foreign real estate are examples of risky endeavors with the potential to bankrupt the average investor. Large development companies fare well with this type of investment, but smaller investors and individuals rarely have the funds to compete.

Purchasing Undeveloped Land

A land investment is often much less expensive to initially purchase and has no upkeep expenses. The reality is the amount of undeveloped land is quickly dwindling. Even in rural areas, it can be a challenge for developers, businesses and individuals to find the right property for their needs. This means good news for investors, as purchasing the right piece of land at the right time can lead to profits.

The Risks of Purchasing Land

Like all investments, there are risks associated with investing in land, as not all land is valuable. Some plots can be protected for environmental reasons, too wet to develop or incorrectly zoned. Some land is contaminated, particularly pieces located in urban areas or near industrial plants. Correcting contamination issues is a costly process, and it is not always easy to tell what property is vulnerable. Knowing when a property is a good deal is the key to becoming successful.

  • Look for land near public services like sewer and water, which is more desirable to developers.
  • Have all land tested for contamination before making any offers.
  • Always know what the zoning regulations are in the area as well as if the property is protected in any way.
  • Never purchase land without making an on-site inspection. The number of things sellers will “forget” to mention can be shocking.

Statistically, investors who purchase land rather than developed real estate make more profit on each investment. A lot of the success will depend on the individual decisions of each investor; however, investing in land can be a recipe for success.