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Why Buy Land? Benefits of Developing Land

Why Buy Land? Benefits of Developing Land

Land is an important commodity that enhances productivity. The attraction of the land development process is an amazing experience. This undeveloped asset not only costs less to purchase than a developed one, but also is generally less expensive to own over time.It also offers appreciation potential, whether or not the vacant area is improved upon. While there are many risks and rewards in real estate investing, raw land is one of the more secure investments to make. To gain a better understanding of the investor appeal, here are five main advantages of raw land development:

Less Competition

Unlike regular real estate investments, which are currently experiencing higher-than-normal competition in most markets, raw land has virtually no competition to deal with. In most cases, investors are looking for established properties, such as residential or commercial properties, that provide an immediate income source. Unless optimized to do so, undeveloped land will generally not earn income regularly.

Opportunity for Seller Financing

Raw land investments award owners more opportunities to use seller financing. Since traditional lenders (i.e., big banks) are often more hesitant to loan money for vacant land, you, as the landowner, get to act as the bank. If someone is in the market for raw land and can’t acquire a loan, you can lend them capital but charge them higher interest rates. This is a win-win situation for every party involved.

 Inexpensive

In comparison to acquiring a developed property, buying raw land is relatively inexpensive to acquire and own. It has minimal carrying costs, including lower property taxes and insurance, but maintenance costs are modest. In fact, performing maintenance on undeveloped land isn’t required, as a vacant lot can be purchased and held on to until appreciation rates reach a level where it can be sold for a profit. Also, undeveloped landowners are generally highly motivated to sell because they are typically absentee owners with little-to-no emotional connection to the property. That said, the right property can provide an immense upside for investors with a strategy in mind for the land.

 Appreciation Potential

Arguably, the biggest benefit of investing in raw land is its appreciation potential. Even in times of economic uncertainty, raw land is a hard asset. Since land is such a scarce resource, it will always be valuable, even if market conditions are rough. Raw land will always be needed, regardless of whether or not it holds economic value. On the other hand, if the economy is thriving, there is a higher probability that your land’s value will appreciate. As land continues to be developed, vacant property becomes harder to come by. Consequently, the vacant land left over becomes more of a commodity, especially in popular areas.

Development Possibilities

As an investor, the allure of raw land investing is in the opportunity it holds. Aside from earning long-term appreciation, the land can be developed into further possibilities, like a single-family home, multifamily property, or condominium. Although zoning and building codes may limit an investor’s opportunities depending on the location, raw land offers investors the ability to choose and develop their own investment path from scratch.

 

Source: Reuben Affum-Ankamah (Real Estate Times Africa)

 

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