Raw land investing has become increasingly popular among real estate investors over the last decade. Raw land (i.e. vacant or undeveloped land) is a great way to earn and maintain steady cash flow, but it isn’t necessarily the perfect option for every type of investor.
Real estate entrepreneurs come in all different shapes and sizes, and with all different goals and aspirations; however, there is one common trait they all share: the desire to be their own bosses and rid themselves from the confinements of their nine to five jobs. Because there is such variety among the real investing crowd, it makes sense that not every investment opportunity will benefit every investor in the same way. Rehabbing properties might work well for one investor while another, equally successful, investor might have better luck with buy and holds. Does this make either investor better than the other? No. Quite the opposite, in fact. Because each investor knows how to play to his or her strengths, they both excel in their individual niches.
So, will raw land investing be your new niche? Consider the following four items before making that decision:
To Attempt Raw Land Investing Or Not To Attempt Raw Land Investing, That Is The Question
It is fairly safe to say that when Shakespeare wrote his famous lines for Hamlet, “to be or not to be, that is the question”, Hamlet was contemplating whether or not to take a stab at raw land investing. Determining your niche as a real estate entrepreneur is, after all, a pretty life altering question to ask.
All jokes aside, deciding which path to take in the world of real estate investing is something every investor should put a lot of thought into. It is important to ask yourself the right questions and do the proper research before jumping into a particular niche so that you set yourself up for success. The ability to designate yourself as “man (or woman) in charge of your own destiny” and call your own shots sounds pretty enticing, which is why most people want to start a career in real estate investing; however, if you want to run a stable, profit-producing business, it is crucial to not jump in the deep end of investing too fast.
This is where raw land investing comes to play. If you are a person who is just getting their feet wet in the real estate investing pool – or even if you’ve been running your own successful investment business for years – making a raw land investment is a great place to start or expand your business. If you like property that is relatively inexpensive, low maintenance, and can produce significant cash flow, undeveloped real estate is about to become your new best friend.
The great thing about investing in raw land is that there is virtually no competition, which is perfect for those whose negotiation skills aren’t quite up to par. Most real estate investors get so caught up with rehabbing, wholesaling, and rental properties, that they fail to see where another great opportunity lies: raw land. Land is a limited resource, so those who own a piece of it are considered to be highly valuable, especially as raw land becomes more and more scarce. It can be purchased for fairly cheap, and once you own some, there isn’t much you have to do. The beauty of land is that it acts as the ultimate buy and hold. There are so many ways to make money off of raw land as well. You can rent your land out to farmers or hunters, you can develop it, or you can simply let it appreciate and sell it down the road as land becomes even more limited.
Okay, so now that I’ve got you intrigued, it is time to analyze yourself so that you can decide whether or not raw land investing is right for you.
- Can You Manage Risk? Although raw land investing tends to be predictable, as with any type of investment, there is always some risk involved. If you are the type of person who is easily overwhelmed by the unknown or conversely, you are someone who jumps into things hastily, raw land investing is not a niche you should pursue. When you invest in a plot of land, you are essentially predicting the future. The moment you put money down on the table, you are saying, I believe that what I am buying into will increase in value overtime. While, in theory, you are probably right – land is limited and the human race will always need more space to develop – there are some things that are out of your control. Suppose a natural disaster strikes and your land gets flooded. Perhaps a fire ensues and burns the crops of the farmer you are renting to and he or she decides to stop paying you. Although these are rare scenarios, they are not impossible and therefore, as an investor, you must prepare yourself for the worst. On the other hand, if you are an adrenaline junky who is drawn to risk like a moth to a flame, it is likely you could make a investment decision based on feelings over facts.
- Are You Financially Organized? When it comes to raw land investing, more than likely, you will not realize a profit as fast as you would if you were rehabbing or wholesaling properties. Because of this, it is crucial that you are vigilant about organizing your finances. This should not, however, deter you from undeveloped real estate. Because raw land is a buy and hold investment by nature, it can be awhile before your land appreciates enough to produce cash flow. If you are a novice investor, you must perform an honest evaluation of where you stand financially. If you are a seasoned investor, you must assess the state of your finances in terms of your current investments and how you want your business to grow. If you are inherently frugal and make money saving a hobby, it is likely that you will realize success as a raw land investor.
- Will You Prioritize Research And Due Diligence? Raw land investing is all about asking the right questions, and if you’ve never purchased vacant land before, you are probably not up-to-date on the jargon and terminology. Before investing in any land, it is vital to first research the market. Has there been recent development in the area? Is your plot of land in the path of future growth? If the answer is yes to either of the above question, your property already meets some crucial criteria. Next, you should talk to your lawyer, the seller, and you inspector’s about the zoning on the property. Are there clear boundaries drawn on the plot? Is it zoned for commercial, residential, industrial, mixed-use, or agricultural development? What was the land used for previously? Asking and getting specific answers to all these types of questions is an absolute must. Also be sure to ask questions about the land’s topography, required annual taxes, available public utilities, usage restrictions, and road access. Minding due diligence and researching the right questions is what sets apart the successful raw land investors from the not-so-successful raw land investors.
- Do You Have Support? Unfortunately, raw land investing – or any type of real estate endeavor for that matter – is no “get rich quick” plan. It takes a lot of hard work and perseverance to realize success in the real estate investing world, which is why a solid support system is crucial to have. While it is important to rely on yourself as an entrepreneur, your own personal cheerleader is nice to have when times get tough. Whether this be a business partner, fellow investor, or family member, as long as you have someone to talk through your decision making process with, you are more likely to be successful compared to someone going into raw land investing alone. If you are having trouble finding your support system, consider joining a local REI group or even create your own meetup.com group. Isolate yourself from the naysayers and negative nancy’s in your life and find people who are there to help you stay motivated.
If you’ve answered yes to at least three of the above questions, consider raw land investing as your next business venture. If you’re ready to take the next step, contact an expert member of the Asset Quest team today.