Investing in vacant land
Monday, 25 November 2019
Land is a finite resource; nobody's making more of it. That's why raw, vacant land can be a worthy investment. When there are no suitable homes or commercial buildings available in an area, people will pay top dollar for vacant land to build what they want.
Before you get started investing in vacant land, here are five things you need to know.
1. Location is crucial
If you want to purchase vacant land and then sell it at a profit for future development, the land must be in a spot that is growing. For instance, land in a thriving suburb where new commercial development has been announced, will likely become more valuable in the coming years. But vacant land in a remote, rural area may be cheap, but is not likely to be in demand unless major developments are in the works. Look for vacant land in an area that is growing or poised for growth.
2. Zoning and other entitlements enhance your product
Before buying land, find out the zoning and other regulations that affect it. If you can have the property zoned for the type of development your buyer will want, your chances of selling quickly at a profit will increase, according to US News. Also, if you can have the land cleared, subdivided or permitted for building, even better.
3. Payoff depends on your timing
When it's not being used, vacant land does not produce any income. For the biggest payoff, owners of vacant land usually must sell at a profit. But if you're willing to delay the payoff or take it slowly over many years—or if you're mostly looking to leave a legacy for your children—you can buy land and hold it. In fact, investing in vacant land works best when viewed as a long-term strategy, according to real estate education company FortuneBuilders. For instance, you can rent land to farmers to grow crops and earn rental income, which will grow over time. But you'll really get the biggest payoff when you (or your heirs) eventually sell the property.
4. Property taxes affect your profit margins
You will have to pay property taxes on your land each year, as long as you own it. Taxes on vacant land are usually much lower than on developed property. But before you buy, find out the amount of the taxes to make sure those payments make sense for your income plan.
5. You can produce pre-development income
While you wait for a builder or developer to purchase your property, you can earn income on your land. For instance, US News recommends renting it for agriculture, parking or billboards.
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