For hundreds of years, investing in land has been used as a vehicle to make money, but it was often reserved for the wealthy. Today, however, with the emergence of new, cheaper land markets and the ability to invest in small plots of land, the market has opened up to a whole new category of investors.
It is essential with investment in land that people do not get carried away simply by buying cheap land. Obviously an inexpensive piece of land may seem attractive, however it is important to remember that your profit will only be made by selling the land and therefore there has to be some reason for the land to increase in value. An investment in cheap land is great, but if you have no reason to raise the price, how do you expect to make any profit?
So, with investing in land, there are some important factors to consider when looking for a piece of land, no matter how big or small. The first to consider is obviously the price. Is the land you are investing in worth the asking price today? Second is how long you intend to hold your investment. Then you need to compare that time to a realistic projection of what your land will be worth when you intend to exit the investment. For example, if you only want to hold onto your land for 3 years, but projections show that the value of land in that area is not likely to increase much over the next 5 years, then you are investing in the wrong land!
More importantly, you need to consider what makes your land investment so potentially profitable. Are you just buying land cheap and hoping it will increase in value or have you done your homework? If you are investing in an area that has reason to appreciate in value quickly, then this is the real investment that makes big returns. Therefore, look for the factors that could contribute to this. For example, is your land currently inaccessible but is that likely to change in the next few years with the introduction of a new road, rail access, or air route? Maybe it’s cheap at the moment because the area is fairly unpopulated or unattractive to tourists, but the area is starting to gain an increasing amount of tourism each year and looks to become a hotspot in the future?
Investing in land can be very simple, but the simplest thing is to forget about the price you are paying and focus on what you will sell for and how realistic it will be to achieve the returns you are looking for from your land investment. If you can’t see a reason why the value of the land would increase, then you’re probably investing in something that won’t give you the return you expected.
If your land investment has reason to grow in the future, make sure you’re paying the best possible price and consider how other costs could affect your return. For example, great value land is no longer great value land if you have to add 60% to the price to cover legal costs, transfer fees, and other fees associated with investing in land.
Investing in land can be one of the easiest and most financially rewarding types of investments out there. The secret is to keep a cool head and select the right area not looking at what makes the land good right now, but what makes the land look so much better in the future!