If you want to make money investing in vacant, or raw land you need to be willing to invest the time and do your homework. As with any type of investment your ability to earn a good return is based on doing the research to become knowledgeable about the pros and cons of land as an investment.
You need to decide what you want to do with the land once you purchase it. That is the one of the main factors in the type and location of the land you want to buy.
If you are interested in starting a residential community on some land you will want to find land that is far enough away from existing developments to allow you to put together a comprehensive use plan.
If, on the other hand, you are interested in building something like a strip mall, you will want to find property close enough to a current or potential area of consumer population. (This decision should also be made even if you are planning on reselling the land in the near future. Any prospective buyer will consider location very carefully in determining if they want to buy and how much they will want to pay.)
You will need to do some leg work to find out everything you can about any specific parcel of land. Details include current zoning, availability of access to sewer and water, electricity, roads, etc. Are these facilities already available or will you (or the developer) have to pay for them?
Having access to a team of professionals that can help you with your land purchase will make your life a lot easier and minimize your risk. It pays to have a knowledgeable and respected realtor, a banker, a lawyer, and possibly surveyors already selected.
All of these resources are invaluable, because they are people you know, like, and trust – and work with on a regular basis.
What financing options do you have? If you already have a track record as a successful investor, you may have a resource of networking you can call on.
If this is your first deal, you may have to deal with a bank. Before you look at properties, find out what they want to have from you and then you can move forward. If you’re prepared and have complete information available for a loan officer you stand a much better chance of getting financed.
Most loan officers will get paid bonuses on all the loans they write so they don’t want to waste time with someone who isn’t prepared, so make sure your homework is complete.
If there are a few pieces of land in prime locations that are available for you to invest in, first determine if the land is buildable. NON-buildable property examples - A lot that is 40 feet wide by 40 feet deep may NOT be buildable if local laws prohibit buildings within 25 feet of the property line would make the lot un-buildable. If the land marshy and unable to support structures without additional work it will be difficult to sell or lease it.
Ground leasing - some investors buy raw land and rent it to another investor who improves it putting up a building. This is a ground lease and can be very lucrative. For example, if your land is at a very busy intersection, you can get a substantial amount of money. 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. (If you don’t find this type of arrangement, the vacant parcel is only costing you money in property taxes and maintenance.)
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 leases to stay in business.
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.