Raw land is in its natural state – undeveloped earth with no outbuildings or structures. This type of property can be a great investment if a few factors are understood and fit the investor. Being aware of the considerations, doing the research and heeding a few cautions can lead to a wise investment.
Buying price is not the top concern in considering raw land; rather selling at the right time for a profit reigns supreme with this purchase. Investors in undeveloped property need the patience to wait for the right buyer. Raw land does not provide a quick flip nor is it for the investor who needs income quickly. This investment is long-term in nature and ideal for the patient at heart.
The location of property is a critical factor in determining the quality of the investment with raw land. The idea is to locate a property that will appreciate in value over time and therefore, will sell for more than the purchase price. Indicators of stable investments would include land located in or around an expanding city, or in an area experiencing population growth. These types of properties draw developers’ interest and buying power.
The local economy also dictates the wisdom of the investment. Purchasing raw land holds the most promise for profit when purchased in economic declines and sold in economic booms. Limited land availability during population spikes bodes well for owners of raw land. At Valuedland.com we are getting you the best deal at pennies on the dollar.
Do the Research
Check zoning laws. Zoning regulations determine property use. Understanding use and limits are vital in determining the raw land’s potential for development and profit. It is also valuable in assessing fit with the perspective buyer’s plans for development or sale. Other zoning issues such as required setbacks must be considered as well. Comparing the actual size of the property with regulations determine the actual building area available to the investor or a future buyer.
Inquire into the history and restrictions on the property. Governmental limitations restrict the use and, therefore, value of raw land in the area the real estate is located. Previous uses could enact environmental restrictions. Easements could bring safety and privacy concerns. Materials left on the property add cost to the investor in clean up. Each of these impacts the potential value of the real estate.
Assess the utilities. When the land is developed, electricity will be necessary. If water, sewer, phone and other services are not easily accessed, the value of the property decreases. Also, access to roads plays a role in the value of this vacant land.
Understand the geography. The lay of the earth or the topography plays a role in the usable space of the real estate. It is essential to assess if the geographic features of the property allow for the development of structures within the zoning limits. Also, considerations such as flood zones, and soil type and grade are vital to take into account when discussing buildability.
Purchasing property from someone who has not owned the property long could be a sign that the land is not valuable for resale. Raw land is not a quick return investment. Be skeptical when the seller attempts to offload the real estate quickly. This situation could indicate issues with the value or buildability of the property.
No income is made off the land which makes for a negative return when accounting for property taxes. Be informed that some real estate carries a high tax percentage compared to its value. A reasonable tax rate falls between one and four percent of the land’s value. Also, there is no tax advantage to raw land due to its lack of a building. Many of the rural properties we sell at Valuedland.com have taxes of less than $100 per year
Financing may be involved. Raw land is less expensive to purchase than developed property for the very reason that it is unimproved. However, banks are hesitant to approve loans on real estate that is not intended to make a profit in the near future. While developed property loans may require a 20 percent down payment, undeveloped land may raise this down payment to 50 percent.Shorter terms (15-20 years as opposed to 30 years) and higher interest rates may also come into play.
There are several benefits to a raw land investment to sum up. This type of real estate:
● Requires little maintenance.
● Is an ever existing asset.
● Increases in value as other area properties are sold.
● Historically appreciates even if the value drops in the short-term.
● Protects against inflation.
The wisdom of purchasing raw land as an asset lies with the buyer. He or she must be aware of his or her financial stability and circumstances. In addition, he or she must do the research to determine the fit of the property with his or her goals. All factors taken into consideration raw land can be an investment that reaps benefits into the investor’s future.