Investing in raw land is actually fairly simple and straightforward. Since the vacant property is just sitting there, it requires very little upkeep, as well as minimal costs and relatively low tax bills. Therefore, you have an excellent opportunity to maximize the return on your investment if you hold onto it long enough.
Here are four reasons to invest in undeveloped land.
1. Opportunity for a high return on your investment
There are two big reasons why investing in raw land can generate a high return:
- Limited supply
- High demand
As more and more land gets developed every year, the amount of available undeveloped land declines. However, the demand for raw land continues to soar – especially with residential and commercial developers. That's why, if you have an opportunity to buy a piece of vacant property, you stand a good chance at generating a high return on your investment. For example, between October 2018 and September 2019, the average price per acre of land in the United States increased by $1,000 from $4,500 to $5,500, according to the National Association of Realtors. That was a 22 percent increase in value. Therefore, market timing is important – just like with any investment.
2. Direct ownership of the land
Since raw land is difficult to finance, most investors end up paying cash to buy it. However, the plus side is that they have full, direct ownership of the land because they own it outright. That means you have the peace of mind owning a tangible investment that will never disappear or wear out. Furthermore, if you are paying cash, you won't have to pay loan origination fees and interest on a mortgage – which makes raw land even cheaper to own.
3. Easier to maintain
When it comes to real estate investments, owning undeveloped land requires much less maintenance than owning commercial and residential properties. For instance, you don't have to worry about expensive maintenance for things like electrical, plumbing, and the structure itself. That means raw land is much easier to manage remotely – so you don't have to live near it. Also, vacant land typically isn't vandalized like developed properties.
4. Cheaper than developed land
Finally, raw land is almost always less expensive to own than developed land. For example, property taxes will be a lot less expensive since nothing has been done with the property to create value yet. Plus, it's usually cheaper to buy as well. In fact, if you can find a motivated seller, you might be able to negotiate an even lower price – especially if you are paying with cash.
In short, the next time you come across a vacant tract of land, you should seriously consider it as an investment opportunity that could potentially generate a good return on your money. Unlike other real estate investments, buying raw land is less expensive and easier to maintain. Plus, it's a tangible investment that will always be there.