Is Buying Land a Good Investment?
Are you considering buying land as a potential investment? Buying land can be a great long term financial decision if done correctly.
Before deciding, it is important to understand the potential risks and rewards of purchasing land.
We’ll cover all of the necessary details, such as who should buy land, how land values change over time, and what factors make it increase or decrease in value. Finally, get to know is buying land a good investment for your portfolio.
Table of Contents
Why Land is a Beneficial Investment Decision?
Unlike other investments, like stocks or bonds, the land is a tangible asset you can physically touch and see. Not only that, it’s an investment that typically increases in value over time.
The land is a finite asset – meaning they aren’t making any more of it, leading to increased value over time, making it a smart investment for the future. Additionally, having land can provide a sense of security and stability.
Owning land allows you to develop it and make it into something even more profitable, like building homes or renting it out as farmland.
Let’s not forget the feeling of owning a piece of the earth, which can bring a sense of satisfaction and accomplishment as no other investment can.
Who Should and Shouldn’t Buy Land?
If you’re planning on investing in land, it’s important to consider whether it’s the right decision for you.
Buying land can be a great choice for those looking to build their dream home, start a farm or agriculture business, or even use it for recreational purposes like camping or hunting.
Real estate investors can purchase undeveloped land as an investment, for it can appreciate over time or develop residential or commercial properties if the location is appropriate.
However, if you’re not prepared to handle the responsibilities of owning land, it may not be the best choice to buy.
For instance, if you don’t have the time or resources to maintain the land or pay property taxes, it could be costly.
Different Types of Land Investments
Residential Land
Residential land is intended for single-family, multi-family homes, or apartment complexes. Designed to provide space for people to live, relax, and enjoy their surroundings.
Also, a good investment location to develop or purchase rental properties to create passive income.
Commercial Land
Most real estate investors would invest in land for commercial property to develop or lease properties to businesses. Examples are office buildings, retail shops, facilities, and other commercial buildings.
Recreational Land
Buying raw land can be used for fun outdoor recreational activities. These can be changing the land for hunting, fishing, camping, or other activities. It can be your private recreational land or lease to other people.
Agricultural Land
If the soil quality, topography, and climate are suitable then the land can be used for farming or ranching. Agricultural land can be growing crops, harvesting fruits and vegetables, or raising livestock.
Industrial Land
Buying vacant land can be converted into industrial land where manufacturing, transportation, or warehousing are established. The market value for industrial land can be an opportunity for real estate investing.
Vacant Land
Others can purchase raw land without having a specific purpose to develop anything on top of it. Real estate investors are looking for a good investment in the potential of the value of the land to increase over time.
What Makes Land Value Increase or Decrease?
There are several factors that increase or decrease land value, and understanding them can be crucial for anyone looking to invest in property.
Increase Land Price
Location – The most important factor that makes land value increase. Typically land closer to cities or tourist destinations will be more valuable than remote areas.
Zoning Regulations/ Development Potential – Land that’s zoned for commercial or residential development is worth more than other land uses.
Accessibility and Infrastructure – If the accessibility of roads, public utilities, transportation, and easy-to-build infrastructure, then the value of the land is higher.
Natural Features – Scenic views or near bodies of water can increase the value as most people enjoy seeing a great view, but it’s subjective to price a view. Typically it’s placed at a higher price point.
Market Conditions – Lands are not free from what goes on in the markets. Supply and demand, interest rates, and economic circumstances will affect the price of the land.
Decrease Land Price
Location – Not only is location an important factor for increasing the value, but it can decrease too. A location prone to natural disasters or high-crime areas will make the land less valuable.
Zoning – Land zoned for undesirable uses, like a landfill, wastewater treatment, prison, or nuclear power plant, will greatly impact the land price value.
Lack of Infrastructure – As mentioned with increased value, if there isn’t easy access to infrastructure with road access, utilities, or transportation, it makes the land less desirable.
Environmental – Land contamination, potential hazards, or near polluted areas will lower the value as there are health and safety risks of developing by or on the land.
Legal Issues – If there is a legal dispute regarding the land, it’s less valuable due to the uncertainty and risk. Who knows if it will be beneficial for you and time-consuming to wait for it to develop.
Market Conditions – Market fluctuations can negatively impact the land from supply and demand, interest rates, or changes in economics on a macro or local level.
Advantages and Disadvantages of Buying Land
Advantages Buying Land
Appreciation Value – The land can increase over time, and selling land can be profitable. Desirable high-demand locations will sell for a higher price.
Diversification – Raw land investing is another asset to your investment portfolio to spread the risk if an investment does poorly.
Tangible Asset – Gives you a visual and can feel your asset, such as real estate buildings. For some people, it gives a sense of security and stability of a long term investment.
Potential Income – Many investors would see a location or zone of land to generate cash flow. Residential or commercial use will develop and lease the land for rental income.
Tax Benefits – Annual property taxes for undeveloped land can be lower than owning developed property. Tax payment varies based on location and land use.
Disadvantages Buying Land
Lack of Liquidity – Raw land investment can be difficult to sell quickly, especially farmland or remote locations. Not many people are looking to buy and sell land.
Limited Income Potential – Vacant lots may limit the amount of income or none, and it can take years before there’s any income.
Holding Costs – Besides purchasing the land, there are carrying costs associated with property taxes, maintenance expenses, and liability insurance/ vacant land insurance. The costs can quickly add up if there’s no income.
Environmental Risks – Purchasing raw land can come with risks that affect health and safety if the risk is near the location or previously was. It can be expensive and time-consuming to clear up.
Zoning Restrictions – There are land use restrictions that zone land for specific purposes. Such as, an agricultural zone cannot be used for commercial or residential development.
FAQ
Is it smart to buy land?
Yes, it “can” be a smart investment in the long run. Buying land can allow you to build your dream home, start a business, or even use it for agricultural purposes.
As the population continues to grow and land becomes more scarce, the value of your property could increase significantly.
Of course, there are also potential downsides like zoning restrictions, property taxes, and difficulty selling in the future.
It’s important to do your research and consider all factors to have an informed decision before buying the land.
Is land a risky investment?
Yes, the land is a risky investment and daunting for many people with many concerns. However, it can be a great investment too.
While there are some factors to consider, such as location, zoning restrictions, and potential natural disasters, it all comes down to your specific goals and situation.
You can be looking to use the land as a long term investment or for personal use without the need to make income from it.
Does owning land make you money?
Yes, owning land makes you money but typically not on its own through other factors involved. It will take initial investments, maintenance, and other expenses before you do.
One way of making money is to purchase land and hold it over time until it appreciates where the value is worth more than what you bought it for. Then sell it for a profit.
Another way is to lease land for others to use to generate income. Also, build property on it to rent out the building for residential, commercial, or other uses.
Always carefully consider the costs and risks before investing in land, as not all land is the same.
Closing Thoughts
Purchasing land can be a sensible and wise investment decision for the right people. When done right, it is beneficial to add diversity to your investments.
Remember that land investing has advantages but also presents risks. Always research and understands what makes up the land value increase or decrease to make the most beneficial decision. Also, seek professional advice before making any major investment decisions.
Ultimately, it is up to you to evaluate your financial situation and decide if buying land is a good decision for you at this moment.
Land can be a great addition to your investment portfolio – make sure you go about it with being informed.
