As many investors know, one way to add value to their portfolio is by investing in commercial land. There is no handbook for investing, leaving many to learn by trial and error. It can be scary to know that a simple mistake can cost an investor a large amount of money. Here are what expert investors have to say about making the best decision to buy vacant land.
Page Contents
- Why is there no guide to investing in commercial land?
- The Benefits of Investing in Vacant Land
- 12 Expert Tips for Investing in Commercial Land
- 1. BUY LAND IN THE PATH OF DEVELOPMENT
- 2. INVEST IN AN ASSET THAT REQUIRES LESS ATTENTION AND EXPENSE
- 3. GET PRE-APPROVED FOR A LOAN
- 4. TARGET VACANT LAND FOR YOUR SEARCH
- 5. KNOW THE ZONING AND USAGE LAWS
- 6. DUE DILIGENCE
- 7. USE THE BUY AND HOLD STRATEGY
- 8. CONSIDER VACANT LAND A LONG-TERM INVESTMENT
- 9. CONSIDER ALTERNATIVE WAYS OF USING VACANT LAND
- 10. BUY A LOT FOR A LITTLE
- 11. SEARCH FOR LAND WHERE THERE IS LESS COMPETITION
- 12. ALWAYS WORK WITH A COMMERCIAL REAL ESTATE PROFESSIONAL
Why is there no guide to investing in commercial land?
In the traditional times of commercial real estate, investors only focused on four main property types – multifamily, office, retail, and industrial. Today, there are multiple alternative investment options, with investing in land being one of them. Today’s savvy investors use alternative investment methods to build wealth and develop a diversified real estate portfolio.
The Benefits of Investing in Vacant Land
Buying raw or vacant land offers a multitude of options for investors and developers, including:
- Land is a limited resource, and when purchased at the right time and in the right area, raw land can have a high return on investment.
- Investing in land can be very hands-off. It is often a more affordable investment than traditional real estate properties with significantly lower maintenance costs. Investors purchase the land, hold the land, and sell it for a profit to a developer.
- Developers have the opportunity to build new properties to increase their monthly income. Buying vacant land in an up-and-coming area can be a lucrative investment for developers. As the area grows, the land becomes more valuable, leaving any building built on the property to increase in value.
Investing in land does not guarantee a high return on investment. However, some considerations improve your chances of gaining a significant return on investment when purchasing commercial land.
12 Expert Tips for Investing in Commercial Land
1. BUY LAND IN THE PATH OF DEVELOPMENT
Because there is a limited supply of land (especially in urban or developed areas), investors should look for land in up-and-coming regions and the direction of a municipality’s expansion. Buying land in the path of future development gives them an opportunity to sell it for a profit in just a few years.
2. INVEST IN AN ASSET THAT REQUIRES LESS ATTENTION AND EXPENSE
Owning an undeveloped piece of commercial land or a vacant lot requires little to no maintenance or expense from the investor. With no systems to maintain – no plumbing, electrical, data, or other infrastructure – the investor is left with the task to pay taxes and other bills they choose to incur.
3. GET PRE-APPROVED FOR A LOAN
Financing can be tricky in commercial real estate, especially for those new to investing. If investors plan to take out a loan to purchase commercial land, it is best to start inquiring about financing long before searching for available areas. Investors should research banks and lenders to learn who does commercial real estate loans for raw land and who can match their needs.
4. TARGET VACANT LAND FOR YOUR SEARCH
Under the right circumstances, a motivated seller with a piece of land may wish commercial land investors to show interest in the property, where investors could purchase the land at a favorable price.
5. KNOW THE ZONING AND USAGE LAWS
Imagine investing in a piece of commercial land, only to later learn that it isn’t zoned for commercial use. Property zoning should be an investor’s major concern, and before investing research on the property zoning and usage laws for a piece of land should be thoroughly completed.
6. DUE DILIGENCE
Like with any investment, potential commercial land investors must do their diligence. Whether an investor is a land expert or a first-time investor, it is wise to visit the property and see it firsthand. Learn the topography, inquire about the availability of utilities, and be prepared for environmental tests for things like hazardous materials or underground tanks and pipes. If not addressed, these issues could cause potential problems or represent significant financial setbacks.
7. USE THE BUY AND HOLD STRATEGY
As mentioned earlier, land is a very hands-off investment. ILand could be a good option if investors want to park their money somewhere and wait for the value to rise. As cities grow and expand, land can quickly become more valuable, so holding the land is often the best strategy to realize a maximum ROI.
8. CONSIDER VACANT LAND A LONG-TERM INVESTMENT
Although it may take some time to gain value and see significant returns, land can be a relatively cheap long-term investment compared to fully developed office buildings, medical facilities, or commercial warehouses. Also, if investors purchase the right piece of land in the right location, they’ll experience very little depreciation, with significant returns down the road.
9. CONSIDER ALTERNATIVE WAYS OF USING VACANT LAND
Commercial land investors can make money off of vacant land. If investors plan on holding the land for a few years, there are a few ways to make money off it, like leasing the space to billboard companies or leasing it to farmers or hunters if the land is not in an urban area.
10. BUY A LOT FOR A LITTLE
Commercial land investors can purchase land for very little money per acre in some areas, but it’s important to note that purchases in the developing regions see a higher return. Therefore, if an investor can get a lot for a small price, that is great, but they must value it if it will be worth it in the long run.
11. SEARCH FOR LAND WHERE THERE IS LESS COMPETITION
Many investors don’t see the benefits of owning land, so commercial land investors often find less competition. Remember, the further investors get from a crowded urban center, the more affordable commercial land will be. However, the best chances for high returns are closer to populated areas. Research is a fundamental step in purchasing commercial land.
12. ALWAYS WORK WITH A COMMERCIAL REAL ESTATE PROFESSIONAL
Commercial real estate transactions are inherently complicated. Although buying land may seem slightly easier than buying an office building or retail property, investors should still consult a professional.
At Stratiq, we have expert specialists who partner with investors through their commercial real estate process and help them find suitable land for their portfolio while saving their time and money. Reach out to one of our experts today to guarantee your commercial land purchase success!