The typical American dream is buying a home, but when you buy land the possibilities are endless. Plus, the land is fairly cheap depending on location. A standard acre will run around $3,000. So is land really a good investment?
The answer to that question really depends on what you plan on doing with the land. As I mentioned before the possibilities are endless: you could build a massive mansion or a cute little cabin. You could even be thinking really big and plan on building condos or a strip mall. So on the surface land might seem like a solid investment, but let’s dive a little deeper. Here are some questions to think about if you playing with the idea of buying land.
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How Can The Land Be Used?
Investors must consider not only the value of the land itself – in terms of its location and price- but also its intended purpose. Your first step should be to check with the city or county to see if the land is zoned as residential, commercial, industrial, or agricultural. Land can also have specific designations, which are similar to zoning laws, but the designations could say that this land is a historical site or a preserve. This is important because this could limit what you are allowed to build on the land. Whatever the land’s label, you should it seriously, because if you build a house on commercial land you are breaking the law.
Can Land Be Rezoned?
If you find that perfect piece of property to build your dream home, but for whatever reason it is zoned as a commercial can it be rezoned? Sadly investors with rezoning dream are usually at the mercy of the city staff. They will likely find the process to be full of costly surprises, such as land surveys, engineering reports, wetland delineations, watershed compliance, feasibility reports, and more. In short, waiting for rezoning to happen is high-risk, high reward. IF you aren’t an experienced real estate investor or a high roller, you should probably look into other options.
Can I Make Money Off Land Instantly?
To keep your land from being a constant drain on your finances, you will want to find a way for it to generate income immediately. This can be done by planting crops or trees on it, leasing it out for cattle, or offering up hunting rights. The key to holding raw land is to keep the taxes and expenses under control. For example farmland sells between $8,000- $16,000 an acre. Rent it out to a farmer, and the crop yields will generally reap a return on investment of about 3.75% per year. It won’t make you rich, but it does offer a slow but steady return.
What Do Developers Think?
If your dream is to build something on your land a good person to talk to would be a developer. As a rookie investor, you may be valuing attribute that a homeowner would look for, like natural beauty, views, and proximity to amenities. While these factors are important, a developer will add additional details such as the number of buildable acres, expected expenses for site improvement, and ease of getting permits and approvals.
Keep in mind that building will cost you. According to data from the National Association of Homebuilders, the median cost of building a home is $289,415, which is more than the average price of an already built home, which is $223,000. You will also have to pay for surveys, permits, and health department approvals. Plus the site will have to be cleared, graded, and excavated, all of which can take a year or more to complete.
Land, as an investment, may be more trouble than it’s worth. So if you are looking for fast easy returns, stocks or regular real estate may be better bets. Still, if land ownership holds some appeal, just make sure to do your homework.