Vacant land can be a great real estate investment, provided that you understand the ins and outs of the land investment process before you buy. It’s a venture with the potential to generate high returns, passive income, and good profit margins. But as with any investment, your level of success comes down to doing your due diligence. 

The process of buying vacant land shares a few similarities with buying a home—but not many. Even if you’re an experienced real estate investor and have bought residential or commercial properties before, buying land is a different ballgame. There are an abundance of details to sort through before you put an offer on a plot of land. Even so, investing in vacant land is a worthwhile prospect. Let’s go over some of the things you should know before you dive into your first land investment.

Vacant Land: The Basics

Vacant, or raw, land is land that doesn’t have any type of existing structure in place. Vacant land can be used for a number of purposes, such as building residential or commercial real estate or for farmland, forestry, or other natural resources like air, water, or mineral rights.

When purchasing vacant land, it’s important to know how the property is zoned. There are 8 main categories of land use:

• Residential
• Multifamily
• Commercial
• Industrial
• Public or Institutional (used for public buildings such as libraries, public schools, bus stations, and so on)
• Parks
• Agriculture (including both farmland and forestry)
• Right of way/easement (gives access to another piece of property)

Additionally, each of these uses has several subcategories that address the size and type of property that can be built, or whether property can be built at all. Depending on your goals for your investment, zoning could become an obstacle if you don’t ensure the land is zoned correctly for your use.

Why Invest in Land? 

There are a number of advantages to investing in vacant land. For instance, land has the potential for good ROI, it is an increasingly limited commodity (therefore it is likely to grow in value), and it is generally a low-cost, low-maintenance investment.

• Good ROI potential. Vacant land investing offers the potential to make high returns if you buy the right piece of land at the right time. It can even produce passive income, depending on what it’s used for (more on that in a bit).
• Low cost. Land values vary depending on location, type of land, and amount of acreage, but land is generally a low-cost investment.
• Increasing demand. The amount of raw land available is limited, and as the population grows it will become more so. Plus, as vacant land becomes more difficult to find, its value will increase.
• Low maintenance. Aside from paying property taxes, vacant land requires very little upkeep. With no building to maintain and no tenants, you just need to keep the property secured and do some minimal land maintenance (mowing, etc).

What Can You Do With Vacant Land?

What you choose to do with your land will depend on your goals. There are a number of ways to invest in land:

• Flipping land. Buying land at a low price, then selling it when property values rise.
• Development. Building a home or commercial property on the land.
• Buy and hold. Buying land with the intention of holding onto it for the long term. This could be to develop it later, to wait to sell until its value rises, or to hang onto land rights such as air, water, or mineral rights.
• Buy and lease. Buying the land, then leasing it to a third party as a way to create passive income. In this scenario the lessee is responsible for the costs of land development or maintenance, including paying property taxes.
• Buy and resell with owner financing. Another way to create passive income. In this case the seller carries financing for the buyer, taking the place of a lender. The buyer provides a down payment, then repays the remaining balance according to agreed-upon terms. The buyer is responsible for land development and maintenance, including property taxes.

What to Know Before You Buy

Before you buy, do your due diligence to determine that the property meets all of your needs and expectations. To begin with, you should investigate the following:

• Zoning and potential restrictions. Does the zoning allow the plans you have for the property? If not, what is the method for changing the zoning or obtaining a variance, and how long will that take? City hall will have information on property zoning.

• The land’s current value and potential future value. Does the land’s current value match up with the selling price? County records can tell you the most recent appraised value. You’ll also want to estimate what value any improvements you make would add to the property value. Would the cost of those improvements be worthwhile? Would you still receive a good return on your investment?

• Annual property taxes. County records can tell you what the yearly property taxes are on the parcel or parcels you are considering. 

• Ingress or Egress. Does direct access to the property exist, or will you need ingress or egress rights through another piece of land? You may need to consult the property’s plat map to confirm (usually found through city hall).
• Utilities. Does the property have water, electricity, and septic/sewer already, or will they need to be added? If the latter, what is the process, time estimate, and cost? Local utility companies and/or city hall should be able to help you with this information. 

This is not an exhaustive list: Depending on the type of land you are purchasing and its location, there may be many other details to iron out before you buy. Your RealtorⓇ can help you sort through them all.

7 Steps to Investing in Land

Much like buying a home, there are several steps involved in the process of buying a plot of vacant land. 

1. Hire a great RealtorⓇ. Since there’s no house involved in your purchase, you don’t need a RealtorⓇ, right? Wrong. Because investing in land is an involved process with a number of variables, having an experienced real estate agent by your side is invaluable. An agent with experience in buying and selling vacant land will be able to help make sure all of the i’s are dotted and t’s are crossed before you buy.
2. Identify your goals. You wouldn’t make an impulse decision to buy a home. Neither should you buy land without identifying your goals for it. Determine your purpose in buying: Are you planning to build? Subdivide it and resell it? Lease it out? Your plans for the land will help you determine how much and what type of land to look for, as well as your ideal location.
3. Get your finances in order. Because there is no structure on the land to use as collateral, finding a lender who will finance your purchase may be difficult. There are options out there, but they are fewer than if you were buying a home. Therefore, most investors opt to buy land with cash. 
4. Find the right piece of land. Once you determine your goals for your land purchase, it’s time to start your search. How you use the land will determine what you’re looking for in a plot of land. You’ll also need to consider the area surrounding the land to determine if there is easy access to the lot, if utilities are in place (or if not, how much it will cost to bring them in), and if the surrounding area is conducive to the plan you have for the land.
5. Determine what permits you will need. Building a structure, bringing in utilities, and requesting a zoning change or variance all require permits. Similarly, various environmental protections, historical designations, or other regulations may be in place, requiring even more permitting. The approval process can vary greatly by permit type and area. Make sure to allow enough time for obtaining the proper permits when choosing a closing date.
6. Hire an inspector. An inspector can help you complete steps such as environmental and soil testing, surveying, and checking for utilities. At this point in the process, you will also need to double check the property lines and confirm any liens.
7. Make an offer. Your RealtorⓇ can help you put together a competitive offer and negotiate with the seller to get the best possible deal. They’ll also help make sure the offer includes ample time before closing to complete any surveys, testing, and other due diligence.

Investing in land offers a lot of opportunities, but there are many details to take care of before you buy. This is why it’s important to have a top-notch RealtorⓇ by your side who knows the land buying process inside and out. They can help you do your due diligence and find the ideal property to invest in.

Our agents on the ResCom Pro Team are highly skilled in all aspects of real estate, including investing in vacant land. Contact us today at 651-578-2255 to discuss your options and start your search!