Here are 3 common misconceptions that people have when considering land investing:
1) It is boring
Boring is good when it comes to investing!
Whilst you might like to have 3-5% of your portfolio in cryptocurrencies for the wild rollercoaster ride, it is wise to have some of your net worth in a stable asset that has proven itself over centuries to be a reliable investment.
Once you own land, you have security. You always have somewhere to live, you can grow your own food. It will go up with inflation.
Every year it is becoming a more scarce asset which contributes to price appreciation.
2) It is not income producing
There are many types of land that do produce income.
If you are looking for income producing land, there are many opportunities to look for land that supports vineyards, livestock, crops, orchards, commercial businesses and outdoor recreational businesses.
There are many lease arrangements that you could strike with farmers, with self storage businesses, with outdoor recreation businesses, with local counties who need the extra space from time to time.
You could also look to make really easy improvements yourself to increase the value, then sell the land for a profit. You could subdivide it, or do some easy work on the property like adding a driveway, cleaning up the gardens, removing any trash and adding a well.
You need to do your due diligence for sure- (like any other investment!)
It is true that the returns are unlikely to rival short terms gains currently see in dogecoin in 2021 (at the time of writing up 12,000% in 5 months). However, who knows which asset will win in the long term 🙂
3) Land is an illiquid asset
Yes and no. It depends. Of course you cannot sell it instantly like a stock. And like everything in real estate it depends totally on price and location. Some land parcels may take a year or more to sell. Some sell in less than a day (with typically 30 days to close).
You will need to do some research and plenty of due diligence. Check with planning and zoning department at the county what the property can be used for. Check for ingress and egress. Check for utilities.
Should I invest in undeveloped land or improved land?
Unimproved vacant land means that nothing has been done to it- no driveway, no survey, no structure, no well, no fencing and so on.
Improved land has had some improvements made. This may or may not be a structure. It might include a well, utilities, a fence, a driveway or a survey.
One type of land is not necessarily better than the other- it really depends on what you are looking for.
If you are looking for land with electric and utilities already set up so you can place your trailer/simple cabin and start living there right away, obviously this will cost more than if you buy unimproved land miles away from urban areas where you would need to add these utilities and improvements over time.
Buying unimproved land is a good way to add value. You can buy it fairly cheaply, add some improvements and make the land more attractive to future buyers.
What types of land can I consider buying?
- Agricultural (farms or forest)
- Easements or rights of way
When should I consider selling land?
Like any investment, it depends on your purpose and time frame going in.
Know your exit strategy ahead of time.
Some people invest in raw land, spend a year or two making improvements, then sell it on to some grateful buyers.
Others buy land in the path of the growth- somewhere they predict the city will need to expand to, or an airport may be recently approved, or an Amazon warehouse may be required there soon.
Once an announcement is made that this area will be utilized more, the price will appreciate rapidly. The time frame may be 3-5 years typically.
This strategy is speculative…. Sometimes the announcement you are very confident in, will be cancelled and the “path of growth” you were expecting, might never happen.
Other land investors keep it simple and buy for the long term appreciation and hand it down to their kids. Land is generally a very safe investment long term.
Other land investors look for ways to generate income from their land holdings. They may look to buy land that is prized by famers in the area, cattle grazers, or commercial enterprises. They may choose to strike a deal with them to lease the land and draw a passive income from it from decades.
If you are buying land for yourself to use (for example you wish to live on it), you may never wish to sell it but hold onto the security of knowing that you always have somewhere to live.
Can Investing in Land Grow Your Wealth?
The short answer is “yes” The caveat is of course- there is no guarantee.
Whilst land investing is simple, it is not easy!
There is a lot of research required.
The more research you do, the better chance you will have of choosing the right area and a parcel of land that is highly desirable.
If you wish to take land investing seriously, there is plenty of research to be done.
You may wish to diversify.
For example, you may wish to pick a residential lot as a long term hold that you can build your dream home on one day.
Maybe you have identified a larger 40acre parcel that you think will be perfect for subdividing into a 20ac and 2 x 10ac parcels that you can then sell off.
Maybe you think the city is expanding and you buy a few parcels in the “path of growth” that you are happy to sit on and let appreciate over the next few years.
Maybe you buy a parcel in the neighboring state where you vacation all the time and you can see increasing in popularity.
Maybe you find some disused farmland, that you can improve, package up and write a lease with some local farmers for long term residual passive income.
There is an element of research, an element of due diligence and an element of luck.
As with all strategies including land investing, it is a good idea to spread your risk out over different time periods, different locations and different types of land.