There are various ways to make money by using land as an investment. Damon Becknel, an experienced entrepreneur and land developer, understands that whether you’re looking for passive income or an opportunity to sell the property later at a higher price, buying and selling land can be profitable.
Securing Capital
The first step in investing in land is securing capital. If you don’t have enough money to buy the property outright, you’ll need to get a loan or mortgage from a financial institution like a bank. You should also consider how much you’re earning and how much debt you can take on before borrowing too much money.
Property Values and Types
Buying land can be profitable because it’s an investment opportunity with many built-in potentials. While the price may drop slightly after one year, there is little risk of becoming worthless or requiring significant repairs. Buying real estate that could be used for industry or business purposes might not produce as high returns but offers more opportunities for growth than just buying a residential property. In many cases, land already zoned for commercial usage comes with increased property value. You can also buy raw land that hasn’t been developed yet and then take the steps necessary to get permits and zoning changes.
What to Avoid
Before investing, it’s worth noting that not every piece of land is suitable for building. Some parcels are located in isolated or inaccessible places that aren’t good for residential development, commercial construction, or just about anything else. Others may have environmental issues that make construction impossible or very expensive. You’ll want to invest in land suitable for development and buy a property with a high enough value to make it profitable.
Land as Passive Income
If you’d like to invest in land without too much work on your part, consider renting out the property you own to people who need it. If the rental income meets or exceeds your expenses (including mortgage payments), owning that property is effectively like having passive income through rent. Some real estate investors may also choose to build their properties into commercial developments that earn revenue through on-site businesses, but this requires more effort than simply renting out raw land.
Land as Intellectual Property
Another option is to invest in land for potential intellectual property. For example, buy a large amount of land with the intent to patent an invention that’s contained within it. You could eventually sell yourself the right to use that device or idea — which would give you the right to collect royalties from future sales or licenses. Of course, this type of land investment is extremely risky because there’s no guarantee that your prospective buyer will ever go through with the purchase. It’s also potentially very lucrative if you can convince someone who has deep pockets and many resources at their disposal.
Minimizing Risk
If purchasing raw land sounds too risky for your taste, consider investing in subdivisions instead. This way, you’ll still own the land underneath your house or business — but you won’t need to worry about buying adjacent pieces of property that could cause problems with zoning regulations. When you buy subdivisions, keep in mind that it’s ultimately just like purchasing any other piece of real estate — so check out comparable prices for similar properties before handing over your money.
Land as an Investment
One of the most straightforward ways to invest in land is by buying it at market value and holding onto it until its price increases. This way, you can sell the land later on for more than what you purchased it for, which means that your initial investment will earn you a profit. For example, if one acre of raw land costs $10,000 today and sells for $20,000 in five years, you’ll make a tidy sum by selling the property in the interim.
Final Thoughts
While there’s no way to guarantee that your investment will earn you any money, it does give you a chance to make some — which is why buying raw land can be a good source of passive income. However, if you’d like to minimize risk further, you should probably stick with purchasing subdivisions instead of investing in land directly. In the end, owning land comes down to what you want from it and how much money or effort you’re willing to put into it.