Many investors overlook vacant land as a possible investment opportunity. After all, what does undeveloped land have to offer anyway? The reality is investing in land isn’t for everyone. While it does have it’s benefits, undeveloped land could sit for months and even years without anyone doing anything with it, which means you’ll not see a return on your investment during that time.
So, how do you know if vacant land is a good investment or not? Take a look below at the pros and cons of investing in land to find out if it’s a good fit for you or not.
The Pros of Investing in Land
There is plenty of undeveloped land out there just waiting for investors to snatch them up and do something great with them. Having said that, not every vacant lot or undeveloped piece of land is ideal as an investment opportunity. Below, we discuss the positive side of land investment.
You can be creative.
While this pro requires a bit of foresight, buying undeveloped land gives you the opportunity to find the best use (read: highest payout) for the land. Of course, zoning laws may keep you from realizing your vision, but you can always go through the proper channels to change them.
You have direct ownership
Direct ownership means you own the land outright. Most investors purchase vacant land with cash, so there are no mortgage payments to worry about. This gives you peace of mind since land is a tangible asset that never wears out.
There’s less maintenance to worry about
Since there is nothing on the land that requires attention, owning undeveloped land requires less maintenance than owning a residential or commercial property.
Vacant land is cheaper
Sellers of vacant land are usually more motivated to sell, making it less expensive to buy than developed properties. Furthermore, taxes and insurance on undeveloped land are usually much cheaper as well.
The Cons of Owning Undeveloped Land
Even though vacant land has a few positive aspects, there is a downside to owning it as well.
It’s hard to get financing.
In most cases, it’s difficult to get traditional financing when purchasing vacant land.
You don’t get as many tax breaks.
Because there are no structures on the property, there is no mortgage, either. This means you don’t qualify for any mortgage interest breaks on your taxes.
Additionally, because there are no structures on the land, there is nothing to depreciate.
There’s no cash flow in the beginning.
Even though you don’t have a mortgage to pay, you still have taxes and insurance, which costs money. However, because the land isn’t developed, there is no way to generate a profit to pay for these things. The money comes out of your pocket.
You’ll need permits and approvals to develop it.
You may or may not be able to use the land as you want. Zoning laws and the say-so of your neighbors have a lot to do with how you can use the land.
As with any investment opportunity, there are pros and cons. Whether investing in land is right for you or not depends on the type of deal you come upon, what the market conditions are at the time, and what you envision for the property. It’s important to weigh both sides to figure out if vacant land is a good investment or not.