Vacant land is increasingly becoming a popular investment choice. As property prices rise, it provides opportunities for diversifying investments, earning passive income and long-term growth.
This article explains strategies for investing in vacant land whether you’re a beginner or an experienced investor.
What is Vacant Land Investment?
Vacant land is undeveloped property that isn’t being used for homes, businesses, or farming. It’s usually cheaper than developed land and can be a good investment if you have the right plan. Compared with other real estate, vacant land needs less upkeep and has fewer costs, making it a more hands-off investment.
There are two major ways to make money with vacant land:
- Capital appreciation (selling the land for more than what you paid for it)
- Income generation (through leasing or other forms of monetization)
How to Choose the Right Type of Land
Before you start investing, it’s important to choose the type of vacant land that fits your goals. Here are some options:
a) Residential Land
This land is for building homes. Investors often buy it in areas where housing demand is growing, expecting its value to surge over time. When buying residential land, research the local housing market, zoning laws and future development potential.
b) Agricultural Land
This land is used for farming or ranching. If you’re interested in agriculture, you can lease it to farmers or run your own operations. It can also provide passive income by renting the land for crops or livestock.
c) Commercial Land
This land is meant for business use and usually costs more. However, it can be a profitable investment if located in an area that’s developing into a business center.
d) Recreational Land
Recreational land is used for activities like hunting, camping, or fishing. Although it may not bring immediate returns, it’s a great option for personal enjoyment while you wait for its value to grow.
Ways to Research the Market
Investing in land isn’t as simple as choosing any plot. It requires careful research to make sure you’re investing in the right location. Here’s how to do it properly:
a) Location is Key
The location of the land is key to its potential value. In 2024, land near growing cities or new infrastructure projects is especially appealing. Look for areas where property values are soaring due to population growth, new businesses, or improvements like roads and schools.
b) Zoning and Land Use
Always check the zoning laws before buying land. Zoning rules determine what you can do with the land. Some properties may only allow for homes while others might be suitable for businesses or mixed-use developments. Many places are updating zoning laws to support sustainable growth, so pay attention to local government plans.
c) Access to Utilities
Land with access to utilities like water, electricity and sewage systems is usually worth more. Land without those services may cost less initially, however, but could require a big investment to add them.
d) Land Valuation
Valuing vacant land can be harder than valuing developed properties, but there are ways to estimate its worth. You can compare it with similar properties, talk to a real estate agent, or use online platforms to get a sense of market prices. It’s important to understand what you’re paying for as market conditions constantly evolve.
Financing Your Land Purchase
Financing vacant land can be easier than other types of real estate, but it comes with hurdles. Many banks are hesitant to lend for vacant land since it doesn’t generate income. Still, here are some ways to secure funding:
a) Traditional Mortgages
Though not as common for land as they are for homes, some lenders may still provide loans for land purchases. You’ll likely need a large down payment, often between 25%-40%.
b) Land Loans
There are loans specifically for buying land. These are offered by banks, credit unions or online lenders, but the terms may differ depending on the lender.
c) Owner Financing
In some cases, the seller may offer financing directly, allowing you to pay in installments with lower interest rates. This can be a good option if you’re having trouble getting a traditional loan.
d) Hard Money Lenders
If you have less-than-perfect credit or need fast funding, hard money lenders could be an option. However, these loans come with higher interest rates and shorter repayment periods.
Ways to Make Money from Vacant Land
There are several creative ways to make money from vacant land, depending on your goals and the type of land you own:
a) Flipping the Land
Flipping land is a common way to make money. It involves buying land, holding onto it for a while and selling it at a higher price when the market is buoyant. Flipping can be especially profitable if you focus on areas with rising demand due to new developments, infrastructure or population growth.
b) Leasing the Land
You can lease your land to businesses or individuals for various uses. For example, you could lease agricultural land to farmers or rent out recreational land for activities like hunting or camping. Leasing land is a popular way to earn passive income without developing the property.
c) Sell to Developers
Developers often look for undeveloped land in growing areas. If your land is in a location with potential for growth, you could sell it to a developer who wants to build residential or commercial properties. The key is to identify these growth areas early.
d) Real Estate Investment Trusts (REITs)
If you don’t want to manage land directly, you can invest in REITs focused on land. REITs pool money from investors to buy and manage land, allowing you to earn profits without owning land yourself.
e) Tax Lien Investing
Sometimes, if property taxes on land are not paid, the government may sell tax liens on the property. By buying a tax lien, you might get the chance to take ownership of the land, either through foreclosure or a favorable agreement.
Risks and Considerations
Vacant land can be a great investment, but it comes with some risks to consider:
- Low Liquidity – Selling land can take time. Unlike homes or businesses, vacant land doesn’t always have a constant stream of buyers.
- Carrying Costs – Even though land doesn’t need much upkeep, you’ll still have to pay property taxes, insurance and possibly some costs for things like clearing the land.
- Zoning and Development Risks – Changes in local laws or government plans can affect the value of your land. For example, zoning changes, new environmental rules or development projects can either increase or decrease its value.
Conclusion
Investing in vacant land can be a profitable opportunity if done carefully. The key to success is selecting the right type of land, doing thorough research, securing the right financing and choosing the best ways to make money from it.
By focusing on areas with future growth potential and understanding the risks involved, vacant land can be a strong addition to your investment portfolio.
