Is buying land a good investment?

November 9, 2019

Many investors buy raw land and rent it to another investor who builds improvements on the land. This is called a ground lease and this type of land investment can be very lucrative. For example you may own a piece of land at a very busy intersection, the ground lease here can get you big bucks. This vacant parcel could be doing nothing but costing you money in property taxes, moving it, and keeping it clean. So if you would like to earn some income from it but you don't want to sell it a ground lease might be an option.

Drugstores, fast food chains in any number of companies will rent your land for 20 years, pay to build their buildings and in the end you will have the land and the building. Developers also utilize ground leases, while they would prefer to buy the real estate; prime land in a good location may not be available. Developers do not make any money unless they develop so they're often forced to get ground leasees to stay in business.

If there are a few pieces of land in prime locations that are available for you to invest in, consider the following before jumping into the deal.

* Find an expert attorney. Do not rely on your real estate broker to keep you apprised of all the nuances involved.

* You only want a property that is zoned for your anticipated use. Do not buy a property based on anyone's word that you will be able to rezone it once you buy it. Rezoning can take months and by that time your prospective tenant might have moved on. Many land investment deals have been left on the table due to zoning conflicts.

* Determine if the land is buildable. A lot that is 40 feet wide by 40 feet deep but if local laws prohibit buildings within 25 feet of the property line would make the lot un-buildable. Also if the land is a mosh pit and unable to support structures without additional work it will be difficult to find a developer to lease it.

* Are utilities close by? If the land is in the middle of nowhere without access to storm and sanitary sewers it will be very expensive for someone to build on your property and you may not see any returns on your land investment.

When you find the perfect piece of land and a prospective tenant, always use an experienced ground lease broker to negotiate your transaction. You should also become well-versed in commercial ground leases and land investment deals. You will still need your broker and attorney but by being a more knowledgeable investor and asking the right questions you can save money by utilizing your professional's time wisely.

Investing in vacant land may not be right for every investor. Buying land as an investment can set you up for the future or sink your money into a hole, depending on what you do with your purchase. In this video we discuss some strategies that you can look at if you decide to invest in raw land.

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