Wednesday, March 19, 2008

Buying Vacant Land As An Investment

Buying vacant land is something that many investors ponder. They can see the long term value, but they don’t like that the property produces no cash flow. Many investors have made their fortunes by buying vacant land, but others made little to nothing on their vacant land purchases.

As with most real estate investments, location is critical when buying vacant land.. Ideally, investors will buy vacant land that will be in the path of future development, but identifying an expanding market and predicting which areas will most be in demand is easier said than done.

Investors should consider areas that are better located for future infrastructure expansion and near major employment centers. Natural barriers such as mountains and rivers can inhibit development in certain directions, as developing past those areas can be cost prohibitive. If development has not yet reached those natural barriers, investors might look to purchase in that area. If development has already reached the river bank, or mountain side, then the city is likely to start developing elsewhere.

Good views and waterfront properties are always in high demand. When buying vacant land for its natural beauty, investors should try to determine find property that is likely to remain beautiful once development reaches the area. This is easier to do with waterfront land then with view property, because it can be difficult to tell if views may someday be blocked by development.

It is also possible for vacant land to produce some income, so don’t listen to people who say this can’t be done. Vacant land is often used for recreational purposes and can produce income while the investor waits for development. Investors can rent vacant land to hunters or fishermen or turn it into a camp ground, an off-road vehicle track or even a paintball field. Investors who can think of activities that are in demand and a good fit for the property are limited only by their imagination. Once expansion reaches the point where the vacant land is valuable, investors can sell it off or develop it on their own.

Investors should evaluate in advance the development potential of the vacant land (its soil, terrain, access) and determine if it will be suitable for building once city expansion reaches it. While some challenges with land can be overcome, the more build-ready the land is, the more valuable it will be down the road.

Buying vacant land as an investment can result in some of the biggest returns in the real estate investment market, but it is a form of speculation and not without risk. To put it in terms of the stock market, I would equate buying vacant land to buying small cap stocks. Small cap companies fail more frequently than their large cap counterparts, but the ones that make it tend to make it big, and small cap stocks have consequently shown better overall returns. As with stock portfolios, investors who are looking to buy vacant land as an investment should diversify and not buy in one area or one city alone... Beyond the ability to take a risk, investors buying vacant land need cash and time to spare. If an investor has all of that, then buying vacant land as an investment might not be a bad idea.

1 comment:

John Laura said...

Most real estate homes for sale and sell some commercial properties. But very few sell land. I have been involved in more than fifty million U.S. dollars ($ 50,000,000.00) worth of ground operations. We have already gone through the school of hard knocks" land sales. As we learned, is the best way to get expert help when possible.

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