Top 5 Benefits of Developing Land
It is clear why one would be attracted to the land development process: not only does this undeveloped asset costs less to purchase in comparison to a developed one, but it also costs less to own over time. Undeveloped land offers appreciation potential whether or not there is work done on the land. Raw land investment is one of the more secure investments one can make as, while there are many rewards and risks in real estate investing.
Experts at Precondo have stated the following: ‘Raw land investing allows people to develop land accordingly to their needs and wants. The cost of developed land is higher than that of raw land, which entails profits for raw land investors. Once purchased, the raw land can be sold as plots. This offers more profit and opportunity to the investor which can also help build a portfolio. There are five advantages of raw land development to help one gain a better understanding:
- Raw land investments are less competitive than residential real estate
- Sellers of raw land can be more likely to finance
- Raw land can offer lower purchase and holding costs
- The appreciation potential can remain high even with less than stellar market conditions
- Raw land offers countless development opportunities
1. Less Competition
Contrary to real estate investments that are experiencing higher-than-normal competition in most markets at the moment, raw land has little to no competition to deal with. More often than not, investors are looking for established properties, such as commercial or residential properties, that can provide an immediate income source. Undeveloped land will not earn income regularly, unless it is optimized to do so.
2. Opportunity for Seller Financing
Investing in raw land can bring more opportunity to the investor to use seller financing. Because traditional lenders such as big banks are quite hesitant to loan money for vacant land, the landowner can offer financing services. If one cannot acquire a loan for raw land, the landowner can lend them capital while charging a higher interest rate. For each party involved, this would be a win-win situation.
3. Inexpensive
Compared to purchasing a developed property, acquiring raw land is relatively lower in cost. When purchasing raw land, one can expect minimal carrying expenses which includes lower insurance and property taxes, however, maintenance costs are modest. Maintenance on acquired raw land is not necessary as it can be purchased and sold when the appreciation rates level or increase, therefore bringing profit. Raw land owners more often than not are highly motivated to sell the land due to having little-to-no emotional attachment to the property. With that being said, the right property can bring many opportunities to investors with strategy in mind.
4. Appreciation Potential
Arguably, appreciation potential is the biggest benefit in raw land investment. Raw land is a hard asset, even in times of economic uncertainty. Because land is a scarce resource, it will always be valuable, even if the market conditions are not favorable. Regardless of the economic value, raw land will always be needed. Given that the economy is thriving, there is a high probability the appreciation on your property will increase. Vacant property becomes harder to come by as land continues to be developed. As a result, the vacant land left behind becomes more of a commodity, especially in a popular area.
5.Development Possibilities
As an investor, the attraction of investing in raw land is the potential it holds. The land can be developed into many possibilities such as single-family, multifamily homes or condominium as well as the land earning long term appreciation. Zoning and building zones may be a limitation to an investor’s opportunities depending on location, however, undeveloped land offers the investor to chance of choosing the land development plan.