Not all of us with money to invest should do so with land investments. There are risks in this type of investing and not everyone is cut out for that kind of headache and worry it can bring. The investor that purchases land will reap spectacular rewards. Sometimes you need to have patience for those rewards to come. The one fact about investing in land that is for sure, they aren’t making any more!
So maybe you have some money set aside for retirement and your 401k isn’t performing like you had hoped. Retirement is getting closer and you aren’t comfortable with what you have put away to live off. The thought of investing some of this money is enticing to you, but you just aren’t sure how to go about it. We are going to offer some insights here that we hope will give you a direction.
Sometimes land purchases consist of a team of the investor and a developer. Some investors will make their money by keeping the property by holding it while it goes through phases. The developer is the one guiding the phases and the more phases, the more money the investor can make. The downside to this is there is no set time frame for long it will take to go through those phases. It could be a fast process with quick return or depending on the market.
For example, the value will increase on the anticipation of a building or a highway planned for an area. However, if these plans drop off, then the anticipated appreciation is delayed or may even become nonexistent. When the market slows, land values take longer to appreciate. Such as the announcement for the plans to build an airport is announced. Immediately, the value of land in that area skyrockets! Then when the plans fall through, could be financing issues or zoning issues, that value will drop.
Another approach by investors is to put the land to use while waiting for the appreciation to grow. Using the land to generate residual income till the time is right to flip it for a tidy profit. You can lease the land to a garden center that uses it as a nursery when they store plants and trees. Driving ranges are another way this land can be used. Any improvements made to the property should be fully depreciated over the holding period. In the meantime though, a cash flow is generated by the use of the property that will pay for the improvements and then some. Even if the area doesn’t take off as anticipated, you can continue using the land for business purposes while waiting for appreciation to increase.
While a land investment can be the best real estate investments, it also can be one of the hardest. Many investors are not able to invest in land because of the risks involved. However, those that do can look forward to significantly higher returns than other investments offer.