For hundreds of years, land investment has been used as a vehicle to make money, but it was often reserved for the wealthy. However, today, with the emergence of new, cheaper land markets and the ability to invest in small plots of land, the market has opened up to a whole new category of investors.
It is essential with land investment that people do not get carried away by simply buying cheap land. Obviously, low-cost land may look attractive, however it is important to remember that your profit will only come from selling the land and therefore there has to be some reason for the land to increase in value. A cheap land investment is great, but if you have no reason to raise the price, how do you expect to make any profit?
So, with land investing, there are some important factors to consider when looking for land, no matter how big or small. The first to consider is obviously the price. Is the land you are investing in worth the asking price today? Second, is how long you intend to hold your investment. You then need to compare that time to a realistic projection of what your land will be worth when you intend to exit the investment. For example, if you only want to hold your land for 3 years, but projections show that land values in that area are not likely to increase much over the next 5 years, then you are investing in the wrong land!
More importantly, you need to consider what makes your land investment so potentially profitable. Are you just buying cheap land and hoping it will increase in value or have you done your homework? If you are investing in an area that has reason to rise in value rapidly, then this is the true investment that pays off. Therefore, look for the factors that could contribute to this. For example, is your land inaccessible right now but is that likely to change in the coming years with the introduction of a new highway, rail access, or air route? Maybe it’s cheap right now because the area is pretty sparse or unattractive to tourists, but the area is starting to gain an increasing amount of tourism each year and looking to become a hotspot in the future?
Investing in land can be very simple, but the simplest thing is to forget the price you’re paying and focus on what you’ll sell for and how realistically it will be to achieve the returns you’re looking for on your land investment. If you can’t see a reason why the land value would increase, then you’re probably investing in something that won’t give you the return you expected.
If your land investment has reason to grow in the future, make sure you’re paying the best possible price and consider how other costs could affect your return. For example, a great priced piece of land is no longer a great priced piece of land if you have to add 60% to the price to cover legal costs, transfer fees and other fees associated with investing in the land.
Investing in land can be one of the easiest and most financially rewarding types of investment out there. The secret is to keep a cool head and select the right area not looking at what makes the soil good right now, but rather what makes the soil look so much better in the future!