Billionaire Andrew Carnegie famously once said 90% of millionaires got rich by investing in real estate. Although land investing isn’t exactly glamorous, it can be lucrative if done right (think: generous returns and passive income streams without much expense). By researching the most common methods of raw land investing, you can make the choice right for you.
Flipping land
Flipping land is one of the most common methods of land investing; it essentially involves purchasing a cheap piece of land and selling it later for more money. However, even more profit can be made by getting the necessary real estate entitlements to develop the land and increase marketability. For example, common entitlements include rezoning, clearing for development, landscape approval, road approval, and utility approval. Since it saves potential buyers extra money, time, and risk, securing entitlements is an effective way to increase the value of your investment.
Buy and hold
A long-term investment strategy, buy and hold lets investors purchase a piece of land and hold onto it for several years. Appreciation, particularly over the long-term, naturally generates return on investment. You may intend to develop the land or wait for demand (and, consequently, value) to grow. Keep in mind, however, you’ll also be responsible for land maintenance and paying taxes. The key with this strategy is to choose land in a location with multiple growth points. Land investment in Texas, for example, is a popular choice for its diverse topography, as well as agricultural and wildlife tax exemptions, which minimize the cost of owning the land. Returns on a long-term hold investment in Texas vary depending on the specific time frame. Holds between two to ten years, for instance, can generate impressive returns of between 20% to over 100%.
Buy and lease
If you want to get into land investing for the passive income stream, your best option is to buy and lease to a third party. For example, you could purchase 30 acres of farmland to lease to a farmer (rather than farming the land yourself). You charge the farmer monthly rent while they’re also responsible for paying taxes and developing and maintaining the land.
Raw land can be a lucrative investment. Flipping, buy and hold, and buy and lease are some of the most common land investment options that can generate high returns at little expense.
