Although land investment may not be the most glamorous real estate investment, if you know how to properly invest in land like a real estate developer, buying raw land is also a good investment choice. Land investment can generate high returns, passive income and huge profit margins. However, like other types of investment, if you want to invest in land to make a profit, you need to have a better understanding of land investment, how to invest in overseas land, and the basic knowledge you need to know before buying vacant land.
1. What is raw land?
There are three types of real estate investment, commercial real estate, residential real estate and land. Vacant land or raw land refers to land without any established buildings or equipment, which can be used for the development of commercial or residential real estate, or for farmland, pasture, or natural resources, such as mineral rights, water rights or air rights. Essentially, when you are buying undeveloped land, the zoning of the land is very important because it determines how the land will be used for future development. There are eight categories of land use.
Public or semi-public (such as libraries, public schools, or bus stops - also known as institutional use).
Parks and open spaces
Agriculture (can include farmland or forestry)
Right of way (i.e. easement that allows people to enter their property through another piece of land or plot)
Among the eight main types of land use, there are several sub-categories that determine the scale of development. According to the density of the area, or the type of property, it can be constructed or not.
2. Why invest in land?
Although not all land has the same value, generally speaking, there are many advantages to buying raw land.
a.Good return on investment
Like residential or commercial investment, land can generate passive income or huge profits, depending on how the land is purchased and sold. Several of my colleagues specialize in buying land, and they have brought excellent income for themselves over the years. If you buy the right land at the right price, you may get high double-digit returns, and there are some ways to use vacant land to earn the remaining passive income.
The value of land varies depending on the location, type of land and the size of the area sold. The price of some raw land can reach hundreds of thousands to several million U.S. dollars, while the price of other vacant land may be only a few thousand U.S. dollars. For most people, land can be a low-cost investment that can be started without a bank loan.
c.Land is limited
Land is generally in demand. As our population grows, so does the demand for land development. There is only so much land available.
d.Almost no maintenance
The raw land is undeveloped, which means there is no property to maintain and no tenants to deal with. In addition to paying property taxes and keeping the land pruned or safe, this is a relatively low maintenance investment.
Compared with residential and commercial real estate investment, land investment faces less competition. Therefore, if you want to start a real estate business, land holds many opportunities. Although there are definitely other land investors, in general, land is more than competition, which means you can find really good deals if you are willing to do some extra homework.
3. Terminology to know about land investment
Compared with other types of investment, land investment involves some unique terms. Let's take a look at some of the most common terms in land investment.
Air rights: property or space above the surface of the earth. With air rights, you have the right to use, lease or develop the space above the land without interference from others.
Right of entry and exit: the right of the owner to enter (entrance) and leave (exit) his property. If the owners do not have direct access to their plots, the right of entrance and exit is particularly important.
Mineral rights: the use of land to develop or exploit oil, natural gas, coal, metal ore, stone, sand or salt.
Lot: A piece of land or lot defined by a county, city, or town.
Division: The process of dividing a piece of land and developing each area independently to increase growth and maximize the use of space.
Water rights: water rights. Also known as coastal right, it means that a body of water such as a stream, spring, lake, river, bay or ocean is attached to the land. As long as it does not affect people upstream or downstream, the owner of the land can use the water.
Zoning: The laws and regulations designated by the county or city determine how to use a property.
Zoning changes: request to deviate from the current zoning regulations and grant owners immunity to allow them to use the property outside of the current zoning regulations.
4. Methods of investing in land
Just as there are many ways to invest in residential or commercial real estate, there are al
so many ways to invest in land. The following are some of the more common methods of buying and selling raw land.
Flip the land
Land flipping is one of the most popular methods of land investment. Simply put, you buy a piece of land at a low price and then sell it at a higher price. Places like tax sales or foreclosure auctions can be great places to find low-cost land that can flip good returns.
Land flipping can be simple buying at low prices and selling at high prices, but some of the biggest profits can be gained by obtaining the right attributes to increase market competitiveness. Ownership can include work done, delimit or redefine property, clear development, subdivide, or allow builders. Doing this work adds value because it saves potential buyers time, cost, and risk because the rights are already completed.
For example, a land investor bought a 5-acre piece of land for $150,000. The investor worked with the county government to divide the five acres into five separate parcels, each with one acre. Investors can now sell five separate plots of land, which may be much higher than reselling the entire plot as one piece of land.
Development raw land
Some investors buy land and develop it themselves. Although this may be a profitable investment, it can also be a long and expensive process. If you want to develop a commercial or residential property, building from scratch, buying raw land and zoning in the right location will inevitably become part of this process.
Buy and hold
Some land investors will buy raw land for the purpose of holding the land for a long time. They may want to develop land in the future, want to wait for an increase in demand (thus increasing the value of the land), or want to hold their land rights, which may include water, air or mineral rights. Although landowners hold real estate, they are responsible for paying annual taxes and maintaining the real estate as required.
Purchase and lease
If the purpose of owning land is to create a passive income stream, that is, the remaining income paid to investors every month-the land owner can lease the land to a third party. For example, if a land investor owns 40 acres of farmland instead of farming the land themselves, they can lease the land to a farmer. Farmers pay monthly rents to land owners and are responsible for the development and maintenance of the land, including tax payment.
When buying and selling, the owner's financing
When investing in land, another option to create a passive income stream is to sell a piece of land through owner financing. Owner's financing refers to the financing of the buyer by the seller of the real estate, which basically replaces the bank in financing. The buyer provides the down payment and repays the loan balance to the seller according to specific terms. The property buyer is responsible for the development and maintenance of the land, including tax payment.
5. Things to know before investing in land
As I mentioned before, not all habitats are considered equal. Environmental factors play a huge role in the value of the entire property. When you evaluate a piece of land, you want to make sure that the property can be developed or used for its intended purpose. If the land is considered a swamp or close to a cliff, it may be difficult or impossible to develop as desired.
Depending on the type of investment, before purchasing a piece of land, it may be worthwhile to conduct a feasibility study to determine whether the anticipated development on the land or the site is feasible. Even with proper due diligence, the price of land may always be lower than expected, it may not be sold as expected, or expensive, timely or unexpected expenses may occur during the development process.
It is undeniable that land investment is a relatively risky investment, but it can also be extremely profitable. This kind of investment strategy will become very complicated. Although there are opportunities to buy and sell land, there are also many things that need to be understood. Determine whether the risk is worth the reward, and whether this investment strategy is suitable for your investment portfolio.