For real estate investors searching for more ways to maximize returns, buying raw land is a great option to consider, as it has the potential to create immense returns when held or improved.
However, many investment experts agree that as an asset class, raw or vacant land is unique, and will require diligence and a strategic approach when purchased as an investment. Before you start your search for the ideal investment, here are some helpful tips for you to keep in mind:
Aim for a shorter exit timeline
Choosing to hold on to land for the long haul can often turn out to be a risky decision, as there’s always the possibility that it could drop in value. Don’t assume that time will be on your side when you’re investing in land, and aim for a shorter period from purchase to resale as soon as your land is prepped for development.
Search for land that can generate income during pre-development
If you’re purchasing land for future development, searching for ways to earn profit from your land during pre-development is a smart move. Look into using it for parking, self-storage, billboard advertisements, agriculture, or other income-generating options while it’s still in the pre-development stage.
Exercise all due diligence
Make sure you perform a title search and obtain title insurance for your investment to protect you from financial loss in case of defects in the property’s title.
If you’re planning to build a single property on your land, make sure it qualifies for the required permits. Cover all bases by gathering information on environmental restrictions in the area and future zoning changes that might affect the property. Hiring a licensed professional to perform a percolation test and a plot survey is also recommended.
Obtain all the right entitlements
The best way to get raw land ready for development is to do all of the leg work by making sure the property is zoned, builder-permitted, cleared, and subdivided, which are known as entitlements.
Acquiring all of the right entitlements can add to your property’s value, increasing the possibility of creating big returns. Getting incorrect entitlements on the other hand, can render properties virtually worthless, and in some cases, put you in a more disadvantageous position than if you sold the land without getting them in the first place.
Search for high growth locations
Buying land in a high-demand area with plenty of potential for growth is the key to any successful land investment. Consider getting a professional market analysis in case you have no idea on which areas you should target.
Purchasing at the right time is also crucial if you want to make outsized returns. Buying land on the low end of the market usually provides a great opportunity to get high returns and lower carrying costs, especially during a recession.