Why You Should Invest In Land This Year
Dear Rich Lifer,
For many people, land is the ultimate investment. As the saying goes, they’re not making any more of it.
So, why are investors skeptical about the idea of buying vacant land?
There are many misconceptions around investing in land. Some people think it’s pointless to buy a plot of land without anything on it. Others view buying land as something only the rich can afford.
These myths couldn’t be further from the truth and today we’re going to debunk some of these fallacies.
Investing in dirt might sound boring compared to investing in the latest biotech stocks or a multi-family apartment complex, but if you do it right, land can be a lucrative asset in your portfolio.
Don’t let the following accepted myths stop you from investing in one of the oldest assets around.
Myth 1: Buying Land is Pointless
Many people think buying land is a waste of money. If you’re going to buy real estate, why not buy a rental property or a fixer upper and flip it?
Just because there is no house built on your plot of land, doesn’t mean it’s a pointless investment. Your land investment is as good as what you plan to do with it.
If you buy land, make sure you have a plan or end goal in mind. Do your homework and understand what your land can and can’t be used for.
Like any investment, you need to have an exit strategy. Even if you plan to hold your land for decades or pass it onto the next generation, make it clear what the end goal is.
Myth 2: Land Doesn’t Produce Cash Flow
When most people think of income producing real estate, they think of a rental. However, a vacant plot can offer similar cashflow opportunities if you know how to leverage it.
For example, a landowner could rent out a portion of his plot to a local farmer. If the property line runs along a highway, several advertising agencies will pay you to install a rotating billboard.
And depending on where your land is located, you might even be able to charge hunters a small fee to use your land for recreational purposes. The possibilities are many.
But perhaps the most profitable way you can turn your land into a cash flowing asset is through seller financing. You become the bank and create a payment plan with terms and interest that allow a buyer to own your property over time.
The best part of seller financing is the fact that the new owner deals with any property issues, not you. Should the new owner stop paying their rent, you can always foreclose on the land.
Myth 3: You Must Be Rich to Invest in Land
One of the biggest myths about investing in land is you need money to do it. While you need some starting capital, the truth is there are many creative ways you can invest in a piece of land.
Partnering with others is one way to pool your funds and secure a sizable piece of land. Or, like we said earlier, seller financing is a popular income stream for land owners. So you might be able to negotiate favorable terms on a seller financed deal that would allow you to buy land with no money down.
The point is you don’t need a lot of cash to start investing in land. You need creativity and experience so you know what to look for and how to structure deals in your favor. You won’t be a pro overnight, but with some practice you’ll steadily improve.
Myth 4: You Can Do Whatever You Want With Your Land
Another misconception many people have when investing in land is they assume they can do whatever they want with their land.
While this is not entirely false, you are still subject to certain zoning and city planning laws. Unless your property is in the middle of nowhere, there’s a good chance there are some rules you will have to abide by.
Not to mention you’ll have to pay taxes on your land, so even though you own the land outright, you’re still paying some “rent” to the government.
Myth 5: You Can Easily Get a Mortgage to Finance Your Land
If you’re new to investing in land, you might think taking out a mortgage to finance your purchase is an easy task. But unlike financing a house, lenders tend to make it difficult to take out a mortgage on a vacant piece of land.
The reason being it’s difficult to accurately estimate the true value of a piece of land. With homes and traditional real estate, you can get a pretty accurate estimate on the price of your property based on what other houses are selling for in your neighborhood. Land is different since no two pieces are the same.
So unless you have a plan to develop your land into a subdivision, build a house, or lease part of your property for farmland, most lenders will deny you a loan. From their standpoint, a vacant property is a risk not worth taking.
The good news for buyers is most land owners own their property outright for all the reasons mentioned above. As a buyer, this gives you room to negotiate a better price since the owner is not tied to a mortgage.
Myth 6: Only Buy Land Close to Home
From a due diligence point of view, buying land close to where you live has its advantages. Being able to walk the lay of the land and see the surroundings offers many benefits.
But don’t let this stop you from extending your search far away from home. Nowadays, you can see a property without having to physically be there. Through video and pictures, you can have someone else walk you around a property.
There are also plenty of professional surveying and inspection companies that will give you an entire report on the property you’re interested in buying for a very reasonable cost.
The point is you don’t need to limit your investments by a radius on a map. Hire others to help you do the work and you’ll cover more ground.
Myth 7: Investing in Land is Straightforward
The barrier to entry to invest in residential real estate is low which is why so many investors flock to buying rental properties. Land investing on the other hand is less straightforward.
It might surprise you since you’re really only buying a mound of dirt, but there are several things you must consider before buying a plot of land that you might take for granite when buying a house.
For example, does the property you are interested in buying have road access or is it landlocked? Does the property have running water and other basic utilities? Are there any zoning restrictions? Is it near wetlands or on a floodplain?
These questions require some research and digging to find answers. Not many investors are willing to put in this extra work or even know what to look for.
This is good news for you, since it creates less competition and you have a better chance of finding more profitable deals.
Real estate is one of the best ways to grow your wealth quickly. Don’t limit your search to rentals or traditional properties. Alternative investments like land are what will set you apart from the rest.
To a richer life,
The Rich Life Roadmap Team