Investing in land may seem to be easy. People make money every day buying and selling land. But those successful land investors do their homework and probably learned some important investing lessons the hard way especially when buying Raw Land.
First of all – What is RAW LAND?
It’s land found in its natural state. This means that there have been no manmade improvements, no infrastructure or site development such as clearing, digging, grading, cleaning and more.
It is also known as undeveloped land.
So, there are some important pros and cons to consider before handing over your money at settlement.
- The land will be purchased and sold “as is”. No repairs or renovations are needed.
- There are no tenants, no late rent payments, no legal fees for evictions, no holes in the wall.
- Raw land owners are by definition, absentee owners. Statistically, they are motivated sellers because their land isn’t producing income and they don’t know how to maximize the potential of the land.
- There is less competition for raw land, so being the only prospective purchaser is a huge negotiating advantage.
- Many land purchases are for cash, eliminating the need for mortgage lenders.
- It doesn’t take a lot of money to get started.
- Raw land can be effectively bought and sold without ever stepping foot on it by using the phone and the Internet.
- It’s may be possible to create passive income from land by financing qualified buyers. Some banks won’t lend for vacant land, so it’s possible to charge a higher interest rate to an eager purchaser.
Most cons associated with land investing are primarily related to a lack of research. Prepare a checklist of every possible negative for a piece of raw land and use it to evaluate any potential investment. Many will not apply, but being thorough and organized is the key to successful investing.
- Find out why the land is vacant. Many people have lost money by buying land and then discovering that it could not be developed or had stringent Council and Zoning regulations.
- If the property’s zoning will not permit the land’s highest and best use, it’s not a good buy. In order to be resold at a profit, the land must be able to be developed.
- Is the property too rocky or hilly for building? Are there flooding issues? Use Google Earth to investigate the topography.
- Ongoing Taxes and Council Rates without any ongoing income from the land.
- Lack of utilities (water, electric, sewer, phone, etc.) is a huge negative for anyone wanting to build.
- The cost of sub-dividing, getting water and sewerage onto the site, development costs, adding roads if required.
- The time value of money in waiting for approvals to build or subdivide.
- Landlocked properties or oddly shaped properties should be avoided. Also, the required building setbacks could make a narrow plot worthless.
- Some sellers are unrealistic, thinking their land could subdivide into ‘x’ blocks and want the retail price for ‘each’ in their undeveloped land.
Whilst it’s possible to buy raw land without ever stepping onto it, it’s still worth doing so yourself or having a trusted advisor check it out for you.
It’s entirely possible to earn a substantial income by buying and selling raw land. Some plots of undeveloped land can be purchased for the cost of one developed property. The key to success is to thoroughly research any potential land investment, before committing to a purchase.
To develop your land, you should contact an expert land developer who will walk you through the process of evolving the land into your vision; this will include amongst others: research, surveying, development and architectural plans, engineering tests and approval from governmental agencies in your area.
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