Most investors don’t purchase raw land because of the many land investing misconceptions. However, these misconceptions are part of the reason that buying land is actually one of the best investments. There is normally little, if any, competition for land, and sellers tend to be very motivated.
Misconception #1: It’s Always Best to Buy Cheap
Cheap land is usually cheap for a reason.
- Use of the land may be severely restricted because of zoning ordinances that will not permit development.
- The topography of the land could be so rocky or hilly that development would be prohibitively expensive.
- The taxes are too high.
Cheap is not the same as undervalued. The combination of knowing what to look for and intensive research will locate property that has a low price, but is not handicapped in some way. Of course, the property must be suitable for development.
Misconception #2: All Land will Increase in Value
Actually, that is usually true. The proviso, of course, is time. How long is someone willing to wait for that increased value? Many parcels of land have been for sale for quite a while. Someone purchased or inherited the land and eventually got tired of waiting for a buyer to approach waving a check with a lot of zeros. Even the most undesirable piece of land may be worth more than it was long ago, but that’s irrelevant. The right questions to ask is, “Is there a realistic expectation, based upon objective experience and facts, that this property can be resold in a short time?”
Misconception #3: Nothing needs to be done to Vacant Land
For typical land buyers, that statement is also true. They buy a piece of land and do nothing to it, waiting for a buyer. However, anyone looking for a short-term land investment would do much better to disregard that statement. Any experienced investor has an “out” plan. They do not blindly hold onto an investment forever but plan on selling if the stock dips to a certain price, for example.
If a land investor is planning to sell to a large development company, the “out” plan includes getting the required development permits and developing the infrastructure. This work will maximize the investment when the land is sold, in a reasonably short period of time, to the right buyer.
Misconception #4: It’s Always Best to Buy Local
Many investors believe that it is always best to buy locally and to walk over every inch of a proposed land purchase. For someone who will rarely buy land, there is some truth in that. However, that is one of the most well-known misconceptions regarding investing in land. A professional land investor will seldom have any personal knowledge of the area, but will know how to acquire all of the necessary information needed in order to make an informed buying decision. On-site inspections are always a good idea in any real estate purchase.
Buying raw land as an investment is not the same as buying a home or a commercial building. In many respects it is easier, particularly since there are no tenant hassles to contend with. Investing in raw land with the intent of a quick resell to a large developer is a niche that requires expertise, a plan, and a process but can be one of the most profitable investments.