Buying raw land is a lucrative investment for a seasoned real estate developer. It is flexible, cheaper than improved land, and appreciates over time.
A bit of creativity is all it takes to turn the area into a premium location. Still, the developer must use strategies that work for that particular location. Here are some tips.
Buy Raw Land in Cash
Land investors pay for land on a cash basis. It gives the buyer a competitive edge during negotiations, saving significant amounts of cash in the long run. Besides, most home equity lenders shy away from financing raw land purchases. There are a few instances when loan financing is an ideal option:
- If the purchase will cripple the investor’s liquidity.
- When the investor wants to save up enough cash for improvements.
Land Flipping – Buy and Sell
Land flipping involves buying land cheaply and listing it as an owner-financed sale for a quick cash return. For example, an investor can get a tract worth $20,000 at a throw-away price of $5,000. Without making any improvements, the investor can put this land up for sale as a financing option of say $300 per month for the next five years. By the 5th year, the investor will have received total payments amounting to $18,000, which is still close to the original value of the land. This strategy works best when the investor wants incredible returns within a short period.
Hedging - Buy and Hold
In instances where there is stiff competition, the investor may decide to buy and hold the property until conditions improve. Also, in the event of a recession, the land investment provides ideal hedging against inflation.
Land for Cultivation
The land is an excellent asset for agribusiness. Instead of hedging, the investor can buy the farm, cultivate it, and then sell it after the harvest. It is a win-win scenario for property buyers with expertise in farming.
Land entitlement strategy involves buying then zoning the raw land for a specific purpose like residential, commercial, or farming. Investors should study the current property trends before settling for the zoning option.
Land takes time to sell. But, with the right strategies and market understanding, an investor can turn an undervalued raw estate to a premium commercial unit. Here, timing is vital.