Buying land is one of the most straightforward ways to make money in real estate. Most investors simply buy the land and then wait to sell it to an eager property developer. But just because the concept is simple doesn't make buying land a no-risk purchase. In fact, buying raw land can be one of the more tricky investments a person can make - unlike buying a residential home. For those just getting started, it helps to keep the potential pitfalls in mind before scouting a location.
Time and Profits
Time is key when buying raw land. An up-and-coming neighborhood may need months or even years to come to fruition—and that's if it happens at all. Investors may not want to sit on that land for so long until they turn a profit.
The Lay of the Land
The topography of the land will have a lot to do with the eventual sale price of the property. If the land has experienced major erosion or the tree roots are getting out of control, it could prevent the development of the land (or at least make it much more difficult to build upon). Investors also may forget about how a building will actually be affected by the natural barriers that surround it. For example, purchasing a plot of land surrounded by hills can reduce the amount of natural sunlight that the structure receives. Anticipating these impediments can help investors decide on the most valuable plot for their budget.
Knowing the Details
Real estate investors may be thrown for a loop once they realize just how many restrictions may be placed upon their land. Zoning laws and environmental restrictions change from year to year, so investors need to think about the future of the Brentwood neighborhood. If new officials are attempting to restrict development, the eventual regulations could stand in the way of the sale. Finally, investors are still required to pay for property taxes on their land while they own it. They should calculate how much they can afford to spend across several months against the expected profit.
Checking Up on the Land
Apart from the topography of the land, there are a few more considerations to make about the condition of the property:
- Activity: If the land has been sitting for quite some time and there's no security on it, neighbors may start to use it as their own personal dumping ground.
- Waste: Debris can be cleaned up, but if anyone is dumping hazardous waste, it can severely contaminate the soil.
- Bills: Investors may have to spend more than they initially thought to clean up their property before they can sell it.
Buying vacant land can be a hugely profitable investment for investors who don't want to rent out a property. For the most part, they don't have to worry about property management, making it one of the most low-maintenance purchases a person can make. But there are more than a few ways for investors to lose money, and it helps to thoroughly evaluate the land before moving forward.