In this article, I will share with you how to invest in land in your area by using ten simple steps. This article shall clear all the misconceptions about the land investment that people tell you all the time. You will learn how to make millions by flipping raw land in your area.
Land Investing as a Beginner
You have heard this quote:
- The land is the only sure investment that will double its value every ten years.
That is 100 percent true, and it does double its value every ten years in every place on earth. The land is the best investment there is. So, let’s start how to invest in land.
Table of Contents
1. Cash Flow from Land Investment
There is a misconception about the land investment that it can not give you monthly cash flow. The land is not for that. It is best for flipping. But, that is not true. You can earn income by renting open spaces in your neighborhood.
In my area (Kolkata, India), I have seen plenty of open places that people use like a garage to park their cars in open spaces under the sky. Some did a coverage to protect those cars from sunlight and rain. But, everywhere I go, I see that kind of rental business on open land. Here in India, we call it Plot.
In our perspective, a Land is where farmers do farming, and a Plot is an open place in the middle of the city with no farming options. In most countries, there is only Raw Land. The idea is similar but in a different way.
So, yes, you can generate cash flow every month from Lands also. It was about $20 to $50 for a car to the garage to make it safe. In your area, the price might be a little high. Go and find it out.
2. Advantages of Land Investing
There are some advantages and disadvantages of land investment, you must know all of them before investing your hard-earned money into it.
You can not build more land like an apartment. It is limited on the face of the earth. Everyone needs land to live, do business, and for farming. Without land, humans can not survive.
When a village becomes a city, the demand for land increases rapidly. If you buy land for $10,000 and after some years that village becomes a city, the value of your land can become $30,000 to $80,000. That is the beauty of the land. The value of the land will always appreciate.
Land appreciates faster than every other real estate investment if you invest wisely. If you buy land where no one wants to build something, then the value of your land will remain the same for years, or even it may go down. I think this is the top reason why people want to learn how to invest in land.
Huge appreciation will happen if the market is moving in the right direction. Otherwise, your land will appreciate about 6% to 10% per year. That is not enough to become a millionaire real estate investor. The value of the land will increase up to 300% if you choose the right market.
No Possession Problem
If you buy an apartment, you will face many problems before you get possession. The developer will not deliver the house on time, the agent will not inform you about something, and the bank will not lend you money if your credit score is poor. There is a headache to purchase an apartment house.
But here, it’s easy to take possession of the land. You buy and take possession. No need to smash your head in the corporate office. Buy and take control.
No Maintenance Cost
There is no maintenance cost in land investment. In an apartment, you have to take care of the whole property, paint, water supply, electrical supply, and other maintenance, but here no repair or no maintenance. Only a small grass cleaner once every six months.
I think that might not be needed as you will sell it before six months as the most land investor does. In between 4 to 6 months, you will sell the. So, the land is a wonderful investment if you do it right.
3. Disadvantages of Land Investment
There are also some disadvantages that you need to know before you learn how to invest in land. So you can make better decisions while investing in land.
An Illiquid Investment
You can not sell the land right now. It’s an illiquid investment and takes time. That is the biggest flaw of real estate investment, and land is one of them. You can’t have the money right now. You have to wait at least a month to sell it.
Not Availability of Financing
Bank will not lend you money to buy land most of the time unless you are buying it to build something on it. A mortgage loan is easy for houses and apartments for investment purposes in any real estate expect the land.
Banks don’t trust the land business. You have to buy the whole land using your money and that can be difficult for some people. If you have the money, start today, or gather it from your friends and invest together.
No Tax Benefits
The government will not give you any tax break on land investment. There are a lot of tax codes based on apartment buildings and single-family houses but not on land. The government wants more affordable houses, not more land flippers. That is why they give a real estate investor tax break like the 1031 tax exchange. You can use it to defer the capital gain tax.
Keep all these in mind when investing in land. It can be a pain in the ass. Make your mind and then buy it. Otherwise, don’t enter. Let’s move on to how to find and invest in land.
How to Invest In Land
Always remember one quote that will be going to change your perspective on land investment, and that is:
- The market decides the value of a house, not the property itself
In the world of real estate, the market is everything. It can make or break the deal. Before you do anything, analyze the market. In the analysis process, find the answers to these questions and try to match them in that area. And those are:
- Are there new jobs created.
- Are people becoming more interested to live there? If yes, what is the reason behind it?
- Where do most of the citizens work, eat and do parties?
- Are there any sports stadiums nearby?
- How about the traffic in that area? More traffic is equal to less occupancy rate. People don’t want to live in a place where traffic is high.
- Are those apartments filled with tenants?
- Do they pay rent on time?
- What about the crime rates?
- Are there new buildings developing nearby?
All these things will affect your land investment. If all of these seem to match, your market is good. You can invest there. There are more to analyze, but there are the basics that every real estate investor analyzes before investing.
There is one more thing that is the 2nd most important after the market condition, a good location.
5. Location Selection for Investment
A market means the whole area, and a location means a particular land, an acre, not the whole city.
When choosing land, make sure there are developers building apartments nearby. If that happens, the time is nearby when they will ask you to sell your land to the developer to build a massive building. That is your main focus in the land business in a big city.
If you are dealing in a small town, you can flip it for a good profit, but the developer will give you the maximum amount. Most land investors choose these kinds of locations. After 5 to 10 years developer will ask them to sell it, and they will make a huge profit.
Invest in Land – A Real-Life Story
One of my relatives owns land in a small town. They bought it ten years ago with an investment of $40,000. Today that land is valued at $300,000. Because that small town now becoming a city. That is the power of a land investment. It can make you a millionaire if just hold it for a long time.
Okay, now you know what kind of property you need to find, but how are going to do that. How are you going to identify a good opportunity, a golden gem? The next point is all about that.
6. Identify a Hidden Opportunity and Invest in Farmland
Identifying a good opportunity is a challenge. Just follow one thing that I have seen work.
Go to your selected area, look at the new developments, and try to connect the dots. For example, you see that people are building commercial retail outlets, and by following them, other people are also building something similar.
If you check the last five year’s data, you will see that trend is moving forward in that area. People are building side by side. So I predict that after five more years, the whole area will be covered up by retail outlets, apartments, offices, and other property developments.
If you buy land on that line far from them about half a mile, then it can be a good investment. Half a mile later, because near that development, the price will be high. A little far you might get a discount. I am not sure, but it might happen.
That is one example of how to identify a hidden land investment opportunity in the market. Use your brain, try to find a pattern, and match those patterns to find the right place to invest.
7. How to Manage the Risk
Land investment involves huge risks. If you can not manage it, you will lose money. Don’t ever think that price of the land will always increase. In some cases, the price might go down. That is the universal law. What goes up must come down.
I have said earlier that the value of land appreciates every ten years on an average. But people sell their land in fear, that market will go down. The land will not sell after that.
The best way to manage risk is to manage your emotions. Don’t worry if the market goes down. Focus on your goal and think about why you have purchased the land in the first place. Don’t get panic, and act smartly.
Do your due diligence twice to reduce all the risks. Good research leads to lower risk. That is the main manta. Analyze it properly and be risk-free.
8. Land versus Other Real Estate Investments
The main difference between these two are as follows:
- In my opinion, the land gives the highest return on your investment. Yes, it takes some time, but can earn a lot more money than other real estate investments.
- Less hassle while buying land than an apartment or a single-family home. It is easy to purchase land.
- Land gives you the flexibility to build anything you want, and everyone needs land to live, do business, and do work.
- The demand will always be there as long as the world remains. The land is the best investment there is.
9. Things to Keep in Mind Before You Invest
- A land investment requires about $10,000 minimum investment ($4,420 per acre). Make sure your goal is clear, what are you going to do with that land.
- Before you purchase, make sure the area is full of basic needs that can make the living or doing business easy. Like as the availability of electricity, water, internet, and parking. Make sure all these are available in that area. Because all these will have an effect on the value of the land.
- Know that it’s a risky investment. It might not generate any cash flow or capital gains for you, even holding it for years.
10. Let’s Start Invest in Land
Now you know how to invest in land and what you must do to make a good profit out of it. I wish you good luck. So let’s find good land, to invest in.
How much money do I need for land investment?
A land investment requires a minimum of $10,000 investment (assuming it is valued at $4,420 per acre).
Why land investment is the best?
Land gives the highest return on your investment than any other investment on the planet if you invest wisely.
Where can I find a good land to buy?
Go to your local area, look at the new developments, and where the city is moving. Then try to buy land in that direction, and the money will follow you.
Does raw land give cash flow?
It can give you cash flow if know how. You can rent that raw land at local festivals, as a car garage, wedding area, and as playground.
What are the advantages of land investment?
Faster appreciation, no maintenance cost, and an in-demand product are the best advantages of land investment.