People often associate real estate investment with commercial properties like residential rental property, office buildings and so on. However, it also comprises investing in physical structures like land, which is a very valuable resource. Understanding the basics of a land deal before investing is very critical so as to stay on the right course:
Identify Your Goals
It’s essential that your land investment goals correlate with your investment strategy; for instance, for a steady source of income, disregard timberland investments, which only yield income when the timber is harvested. Investing in farmland can also provide steady cash flow if you can lease the land to a farmer or an agricultural corporation. In addition, an exit strategy needs to be mapped out; for example, if you intend to purchase the land just to lease out for commercial or residential purpose, returns on investment would take time to spring up and this takes a lot of time. In fact, if the land is sold, it would take a longer waiting period since you would have to find a developer to purchase the land.
How to Vet a Land Deal
Prior to injecting money into a land deal, evaluate the pros and cons carefully and pay attention to the following:
#. Zoning: The location of a piece of land and its use determine your investment strategy; a land earmarked for residential purposes would not be appropriate for business purposes. Even though the price might be alright, you have to consider how much value you can obtain from it over the long term.
#. Utility Access: Access to social amenities like sewer, gas, electricity, water is essential if you’re going to build on the land or lease it for development. If the land lacks all of these utilities, you would need to obtain them, strictly working by your budget.
#. Market Value: You need to know the worth of a piece of land before investing in it, this seek professional appraisal. Although it is quite helpful, it will be quite difficult to pin down market value to 100% certainty. Using zoning, the local market and the surrounding area can get you a more accurate figure.
#. Road Access: Ensure that the land is quite accessible. If the area surrounding the land is privately-owned, ensure that road access is available if it isn’t. You might even have to pay for easement, which would be included in the value of the investment.
#. Maintenance and Improvement Costs: The purchase price is not the only cost that comes with acquiring a land; property taxes, miscellaneous costs (costs that would come with clearing the land, etc.). These costs have to be balanced against any income the land eventually generates.
Managing Land Investments
This depends on how you intend to use the land. This is different from monitoring the performance of stocks or mutual funds. If your interest tends towards land speculation, that is, if you’re more involved in the market since profitability depends on how developers influence demand. Speculation offers the potential for more returns although it holds more risks than other land investment strategies.
However, it would enable you keep track of the market and its fluctuations. You can also hire someone to manage the land for you if you plan on leasing it out. A passive approach, it removes the hassles of working with tenants or developers directly but also adds to the investment costs.
Research the potential pros and cons of land deals and weigh the costs and benefits if you intend to delve into land investment. This would give you a better insight into how well your investment strategy will work.