Investing in land can be an excellent way to start or diversify a real estate portfolio. Buying land isn’t quite the same as buying a house. There are many things to consider, and sometimes there is little data available to help you out. In our latest post, we will provide you with a guide to investing in land!
While land might all seem the same, there are many variables that make each and every lot and parcel unique. Before you dive into land investment, make sure you have considered all the angles! To begin, ask yourself this:
Why Are You Buying?
In the land for you and a future dream home? Or is it an investment, purchased with the intent to flip or develop? Your reason for wanting to invest in land will change the way you look at what’s available. Land investment is a numbers game. While you will want the land to be able to be developed (whether you are doing it yourself or not,) you will likely worry less about finding the perfect lot and more about what the numbers have to say.
Determining the value of land can be difficult. Prices can fluctuate, with high or low sales greatly impacting overall averages in a given area. While you can look at similar recent sales, there are also a few key things you should look at to determine the value of land.
- Future development in the area – Are there plans for a new grocery store or school nearby? These things will have an impact on your land’s value
- Ease of development – Whether or not you want to build on the property yourself, you will want to make sure there aren’t any obstacles holding you back. This can be things such as bad soil for building, endangered animals or plants, being in a flood zone and more.
- Lot orientation – The direction a piece of land faces can have an impact on its value. Some people love the evening sun in their backyard, while others prefer to have the sun come in front windows in the morning. If there is a view to be had, the building will take place around it. Having a lot that works well with this requirement is sure to bring in more cash when it is resold.
Know The Neighborhood
Take some time to drive the area. Go for a walk to get a better feel for what it’s like. You will be surprised at how slowing down will give you a different perspective on the neighborhood. Talk to the people you meet who are out and about. If you let them know you are considering moving to the area, you are sure to hear about what they either love or hate right away!
Location Within The Neighborhood Or Subdivision
Where do you want to be within the subdivision? Right at the entrance or tucked away in the back? If you are buying for yourself, you will probably spend a good amount of time thinking about this. If you are buying as an investment, you should still consider what your tenants or buyers will want. However, you might choose to be a bit more flexible about the location.
Costs To Develop
How much will it cost to develop the land? Consider your building costs as well as the costs to run utilities if they aren’t in place already. You might need to level or clear the lot in order to build. All of these things add up and will impact the value of the lot.
While the costs to own land are typically pretty low, there are still things you should be aware of. Even if the lot is vacant, you will still have to pay your property taxes. Depending on the neighborhood, you might need to keep the lot mowed, the trees trimmed, etc. If you want to quickly flip the lot, beware of capital gains taxes you will possibly incur.