The Top 5 Strategies Making Money Investing in Land
Investing in undeveloped land is often overlooked and may not have the glitz and glamour as other real estate investments, but you know what it doesn’t have? The high risk and competitive market.
High profit margin deals are often the results of understanding investment strategies and knowing how to uncover invisible risks through proper due diligence.
Not sure investing in land is actually profitable? Keep reading to discover the profitability of land investing!
Developing land has the highest-risk, highest-reward potential for land investors. Compared to other real estate investments, land development faces far less competition and with only 6% of the land in the United States developed and the current trend of flocking to the suburbs, the opportunities are vast.
Getting into land development may sound overwhelming at first, but there are several exit strategies and areas of focus for individuals to pursue so finding your niche will help you from being overwhelmed with the overall concept. Finding a mentor, a partner or business, like Land Intelligence, may be a smart decision to accelerate your knowledge and growth.
The reason some of the highest margins are in land development is you will be adding value to the property by changing the zoning, permitting, entitlements, adding utilities, etc. This is a similar concept to a fix-n-flip with houses as it saves time, cost, and risk to the prospective buyer as the entitlement work is completed. Depending on your exit and financial strategy, your returns could be more than 5x your initial investment.
Subdividing a great and relatively simple way to create value to the existing raw land. Dividing a lot into smaller sizes will generally equate to a higher price per acre for each of the new lots that can now be sold to individual home buyers or home builders.
The key to subdividing is understanding the current zoning and optimizing how many lots you can create. To complete a subdivision of a property, a proposed plat will require approval from the local municipality.
Finding land to subdivide may be the hardest aspect to this strategy. You may find infill opportunities where there is an oversized lot that can be divided, recreational land, or land in the suburbs. Regardless, having proper searching tools to discover these hidden gems will ultimately save you time and money in your search and thus increase your returns on your deal.
Flipping land is one of the most popular ways to invest in land. The concept is simple, buy low, typically 30-40 cents on the dollar and sell high, typically 60-70 cents on the dollar. The core strategy to land flipping is a win-win-win scenario where your seller wins as they want to offload the property and your buyer wins as they are buying property for less than the market rate.
The common ways to find land to buy at these prices are through tax sales, foreclosures, or through a volume-based approach of mass mailers. The tax sale process is different state to state but generally there are lots with tax liens on them. If they go unpaid, the county offers the property for sale at discounted rates.
For the direct mailer marketing campaigns, a volume-based approach is most common however applying some filtering criteria into your lead lists will help you improve your hit rate and lower your upfront costs. For example, I may want to remove land that was recently purchased, or I may want to find owners that live out of state. Leveraging software to save you time and cost will increase your returns in the long run.
Buy and Hold
No different than houses or stocks, land is a great investment as it appreciates. Especially in today’s market, if you can find a great deal on a piece of land, the investment is bound to return a profit in the future. Taxes on undeveloped land are relatively cheap and there are many things you can do with the land that provides passive income.
As the owner of the land, you own the water, mineral, and air rights to the property which gives opportunities to leverage these for passive income. Another common practice is to sell your timber to a local company.
There are also many leasing options to consider for your land. These include farming, hunting, recreational land use, and even RV parking storage.
Getting a loan for land is often a challenge. Buying land with the intent to create passive income through seller financing is a win-win solution as you are offering individuals who may not want a traditional loan another option to enjoy and use land. Owner financing is when you as the owner of the land will sell the property and will carry the financing for the buyer, no different than a bank. The buyer of the property has the responsibility for taxes.