There are many ways to invest these days. You can invest in the stock market, residential or commercial real estate, a business, and more. But have you ever thought about investing in raw land? The word “raw” means the land hasn't been developed yet. With the potential for future development, these properties are an attractive investment opportunity for buyers with or without experience in property developments or construction skills. Why would you want to invest in raw land?
Investing in Raw Land is a Way to Diversify Your Portfolio
With the ups and downs of global financial markets, there is no guarantee that investments in stocks, bonds, mutual funds and other commodities will increase over time. All investments have inherent risks, but that doesn't mean you have to abandon investing in these instruments all together. Investing in raw land is one way to hedge risks and try something new with your investment portfolio.
Raw land has an intrinsic value and is unlike other investments that can suffer due to external influences. Moreover, it is a lesser-known investment than stocks and bonds, and one that people often will not invest in due to its perceived complexity. This means when you decide to sell your land or develop it in the future, you are unlikely to have many competitors, which means higher profits when you sell your property.
It's Low Maintenance
Who doesn't want low maintenance investments? Buying raw land doesn't require the upkeep that investing in housing or commercial real estate does. The lack of structures to maintain is easier on your pocketbook, and there are no utility bills to pay. Plus, you won't have to pay steep property taxes. Combine that with the fact that you can often get raw or vacant land for an inexpensive price, you can grasp why it's an appealing investment.
There's a Finite Supply
One of the most attractive features of raw land is there's a limited supply. The earth only has so much raw land available. With limited supply and growing demand, there's a good possibility that available land will increase in value with enough time.
How quickly it will increase in value depends on the location of the land you buy, the economy in that area, and the demand for housing and commercial real estate. As land is gradually developed and there's less available, your raw land will go up in value.
If you buy in a growing area with limited available land, the value could increase quickly. However, you also have to get in early as prices rise as demand increases.
There's Less Competition for Raw Land
Most people don't think of investing in raw land, making the competition for the land out there lower. It's an investment that many investors overlook. Less competition means you can get it at a cheaper price, and you won't have other investors breathing down your neck to buy the same property. It's a limited resource that many people overlook in their desire to invest in other assets, like developed real estate, stocks, and mutual funds.
It's an Investment That Could Pay Off Big in the Future
When you invest in land, you are looking at the potential future value of the property. Many real estate experts believe that land will increase in value once developers take notice of its potential value and agree to build on it. This means you will make money when they pay for the rights to build on your property.
A Word of Caution
As with most investments, it takes time to reap the benefits. Raw land isn't an asset class that goes up in value as quickly as other important financial instruments, like stocks and bonds. It can take a while to realize a profit from this type of investment, unless you plan on developing it yourself. Do your research and understand the ins and outs of buying raw land before taking the plunge. Understand what's important when investing in raw land too. Some factors to consider include:
- Location of the land
- Potential for growth in the area
- The history of the property
- Availability of financing
- Zoning restrictions on the land
- How quickly you need to realize a return (Investing in raw land is often slower)
The Bottom Line
Too many people aren't aware that raw land can be a worthy investment, and don't know that undeveloped land has current value, and that value can increase over time as land in the area becomes scarcer. It's not a get-rich-quick scheme, so do your research before buying, but also view it as a largely untapped option for investing your money. It could pay off one day!