When most people think about investing in real estate, they think of investing in homes. In today’s blog post, I wanted to share with you another way you can look at investing: land!
Several years ago I was a partner of a company where we purchased 18 lots of land that were fully developed. All utilities and streets were put in. The owner was unloading them, and he wanted out. We knew what kind of house would sell in that area and what the price point would be. We knew that the homes would sell for 50 times the land cost. If you are an experienced investor or builder that seems absurd, but it is a true story.
Is Investing In Land A Good Real Estate Strategy?
Determine the Value
A house would sell for 5 times the cost of a lot. So one way to determine the value of land is to consider the selling price of a home if you were to develop it into lots. Keep in mind that the development costs must include purchase price and all land improvement, utility taps, carrying costs, and any re-zoning and re-platting costs. If an opportunity is simpler than this, then that makes it even easier to consider. When I am investing in land, I like to see a minimum of 7 to 10 times house value to cost of the lot.
Determine Your Revenue Streams
Vacant land has no income stream but it does have ongoing costs. Any time you buy raw ground you have ongoing costs, like taxes, with no income. In some agricultural states, investors will buy raw ground and graze cattle on it. By doing so, they receive from income from the cattle lease and the taxes come under an “agriculture exemption” and are greatly reduced
Strategize How to Increase the Value
By changing the “use” of raw land you can increase its value. This is the favorite and most used method of investors. Changing the
Focus on the Market
Vacation markets are more dependent on the national or regional economy that they are the local economy. The last thing to remember is, vacation markets can be especially cyclical. If the national economy is doing well then those markets have a tendency to thrive. If it is not doing well, then they suffer.
I love talking about real estate, and I hope this post has helped you see that real estate isn’t a flat market. There are so many ways you can go when you invest in real estate, you just have to know what you are doing!
I am hosting a workshop in April to train people on how to invest in real estate as beginners, and also how to scale your real estate business for current investors. You can find more information here, or comment below with any questions!