Pros and Cons of Land Investments

Investing in land may seem to be easy. People make money every day buying and selling raw land, but those successful land investors do their homework and probably learned some important investing lessons the hard way.

There are some important pros and cons to consider before signing a check at a closing.

Pros

  • The land will be purchased and sold “as is”. No repairs or renovations are needed.
  • There are no tenants, no late rent payments, no legal fees for evictions, no holes in the wall.
  • Raw land owners are, by definition, absentee owners. Statistically, they are motivated sellers because their land isn’t producing income and they don’t know how to maximize the potential of the land.
  • There is little or no competition for raw land, so being the only prospective purchaser is a huge negotiating advantage.
  • Most land purchases are for cash, eliminating the need for mortgage lenders.
  • It doesn’t take a lot of money to get started.
  • Raw land can be effectively bought and sold without ever stepping foot on it by using the phone and the Internet.
  • Create passive income from land by financing qualified buyers. Most banks won’t lend for vacant land, so it’s possible to charge a higher interest rate to an eager purchaser.

Cons

Most cons associated with land investing are primarily related to a lack of research. Prepare a checklist of every possible negative for a piece of raw land and use it to evaluate any potential investment. Many will not apply to a contemplated investment, but being thorough and organized is the key to successful investing.

  • Find out why the land is vacant. Many people have lost money by buying land and then discovering that it could not be developed.
  • If the property’s zoning will not permit the land’s highest and best use, it’s not a good buy. In order to be resold at a profit, the land must be able to be developed.
  • Is the property too rocky or hilly for building? Use Google Earth to investigate the topography.
  • Are the taxes too high? Anything higher than 4% of the market value is a red flag.
  • Lack of utilities (water, electric, sewer, phone, etc.) is a huge negative for anyone wanting to build.
  • Landlocked properties or oddly shaped properties should be avoided. Required building setbacks could make a narrow plot worthless.

It’s entirely possible to earn a substantial income by buying and selling raw land. Many plots of undeveloped land can be purchased for the cost of one developed property. The key to success is to thoroughly research any potential land investment before committing to a purchase. Are you ready to invest in land? Contact Asset Quest today to learn more!

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Buying Land with a Self-Directed IRA

copy2Buying land for sale as an investment takes careful study, patience, professional assistance, and, of course, money. Because most land does not service debt well, many (if not most) land transactions are cash deals. Purchase funds come from a variety of sources – personal wealth, the sale of another property, or the wise investments in traditional assets (stocks, bonds, mutual funds). A lesser known, but steadily growing source of funds for timberland and other real estate investing, is the self-directed Individual Retirement Account (IRA).

Self-directed IRAs are similar to standard IRAs with the key difference being that the investor has much greater flexibility to invest in alternative or “non-traded” assets. While this investment vehicle has been available since 1974, only 2% of the nearly $7 trillion in total IRA balances is held in self-directed IRAs. Much of the reason why those with retirement funds haven’t heard of this option is that most IRA custodians/financial advisors focus solely on the standard investments like stocks, bonds and CDs. However, given the volatility of the stock market, although presently at all-time highs (for now), an increasing number of savvy investors are seeking alternatives that can provide greater diversity, and thereby greater stability, to their total retirement portfolio.

For the vast majority of Americans, the IRA is the largest amount of money they may ever hold in their lifetime. While diversifying assets is important to long-term growth, so too is protecting the principal and balancing risks against the reward. Therein lies the second most likely reason why many have avoided tapping their retirement funds to diversify into less well-known alternatives. The benefits of owning timberland via a self-directed IRA are well-documented, but the asset class and the IRS obligations must be fully examined and understood well before deciding to crack open the retirement nest egg for acquisition funds.

In summary, initiated investors who wish to add land to their retirement portfolio and who are willing to do the necessary homework can do so successfully via a self-directed IRA. If you are ready to start investing in land, contact an expert member of the Asset Quest team today!

5 Things That Deserve Your Undivided Attention Before You Buy Raw Land

Not unlike its developed counterpart, raw land can hold incredible value for residential redevelopers and investors. In the right hands, it can result in a lucrative payday, provided due diligence is minded. It’s worth noting, however, that while vacant property can be flipped successfully, it’s not without it’s caveats: If for nothing else, there are several differences between the strategies used to develop raw land into an investment opportunity and your average developed suburban home.

It’s maintained that raw land investment strategies award savvy residential redevelopers the opportunity to realize unparalleled success. However, success will not come without the appropriate knowledge and due diligence. If you want to flip raw land successfully, there are several things you need to know. I highlight five of the most important differences between an average flip and a raw land transaction below.

  1. Location

We’ve all heard it before; real estate has one cardinal rule: location, location, location. For what it’s worth, buying raw land puts the age-old adage to the test, as the location in which you intend to buy vacant land is of the utmost importance. Think about it: Regardless of your intentions, location is the one fundamental indicator that will influence how everything transpires from the moment a property is acquired. Remember, location is the one thing you can’t change once you take ownership of a property, so make sure it checks all of your boxes.

Residential redevelopers, or those intent on developing the land to flip it (real estate new build), must first acquire a lot with not only resale value, but demand as well. There is no other way around it; the land you buy must coincide with a value that you deem worthy of a viable return on investment. Neglecting to mind due diligence up front could result in the acquisition of a property without much value, let alone enough to recoup your initial expenses.

The land you purchase should compliment your intentions. Those looking to start a business shouldn’t buy isolated land far from customers. And it should go without saying, investors shouldn’t buy land they can’t build on. Having said that, it’s a good idea to compile a check list — criteria, if you will — of everything you need in a property to carry out a successful investment.

Once you are confident that you can build a home on the land in question, take note of whether or not it has everything you will need to move forward with a real estate investment. Remember, everything missing from your checklist will coincide with an additional expense later down the road, in addition to the cost of building a home. Above all else, be sure that the land you intend to purchase has everything you need, including the permission to build a property. Location isn’t only about where the home will be, but whether it fills your most basic needs as an investor or not.

  1. Additional Costs

The most successful investors in today’s industry are more than aware that real estate requires both an investment of time and money. That said, you are more likely to spend your money in an efficient manner if you put the time in before hand to mind due diligence and educate yourself on the proper procedures to develop raw land. Only by doing your homework can you fully expect to know the true costs associated with buying raw land and developing it. I maintain that a proper education and a clear understanding of what lies ahead is the only way to successfully invest in vacant lots, and the costs of developing raw land are no exception. It’s in your best interest to know exactly what you are getting into.

In the event you decide to buy raw land to build a property, you will need to account for a litany of expenses that are likely headed your way. For starters, you will need to have the land surveyed to identify its boundaries. Depending on the location, you may have to clear natural obstacles in order to make room for a sturdy foundation. Remember, nothing comes free; building on raw land comes complete with a lot of additional expenses, all of which can add up very fast. Before you buy the land, be sure you have accounted for every additional cost you will incur.

There is, however, one cost those investing in raw land for the first time must become acquainted with, and fast: utilities. Not unlike your average property in a developed neighborhood, the house you intend to build will need utilities — no surprise there. However, it’s safe to assume the raw land you are building on is void of such a luxury. There is a reason they call it raw land. It’s not uncommon for raw land investors to incur additional costs for the sole purpose of running water and electricity to your unbuilt home. Some lots may even require you do dig a well or install a septic system, and that’s before you even break ground on the home itself.

  1. Zoning Restrictions

In their trust form, zoning laws are essentially a list of rules that identify what can or can’t be done with the land in question. They are integral to an investor’s project and not to be overlooked. In fact, you could argue that nothing is more important to a land investor than the zoning laws that govern the property up for sale. Neglecting to account for zoning laws can be a costly mistake, and one that can potentially ruin the bottomline of any investment. That said, it’s in your best interest to know which zoning laws apply to the land you intend to buy.

Fortunately, identifying zoning restrictions isn’t complicated. It’s entirely possible to find out the necessary information at your local zoning office, which can be found in any U.S. county. You can also find a great deal of information online or in county records made available to the public.

It’s worth noting, however, that you should not only pay attention to what your land is zoned for, but also any long-term plans the county may have. If for nothing else, you want to have a clear picture of the long-term prospects of the land you purchase. The last thing you want for a real estate investment property is to find out a highway is planned to bisect your backyard sometime in the next decade.

Again, zoning restrictions identify what a property can and can’t be used for. If you intend to build a home on a property, you had better be certain you can do so. But don’t stop there; find out what else you can and can’t do with the property and make sure it meets your criteria.

  1. Road Access

While not something the average real estate investor has to contemplate on a daily basis, those looking to invest in raw land must address the issue of access. If for nothing else, a parcel of land — no matter how great it is — will be of no use to an investor who can’t access it.

It’s easy to underestimate the importance of road access, especially when it is a luxury you have grown up with for the better part of your adult life. However, there is a good chance that the majority of raw land plots you intend to purchase don’t come complete with their own roads. While less of a problem in urban areas, a distinct lack of road access in rural areas can be a major problem. Road access not only impacts the development of the land itself, but also those who intend to live there in the future.

  1. Permits

Those familiar with the real estate investing industry are already well aware of the prevalence of permits. It’s sad, but a reality nonetheless: nearly everything you attempt to do as a residential redeveloper will require some sort of permit. While annoying, permits are a necessary evil, and prevent some people from making huge mistakes. If for nothing else, construction permits keep your efforts honest and building codes at the forefront of every undertaking. Seeing as how those building codes were put in place to protect occupants, you could argue that permits are an important safety measure we should all be thankful for. Adhering to building codes will result in a sound investment you can bank on, figuratively and literally, for years to come.

Having said that, you should be ready to apply for a variety of permits if you ever home to build a house on the recently acquired raw land. According to How Stuff Works, “the construction process is laden with permit requirements, from plumbing to electrical work; on the bright side, at the end of the day, all that paperwork will guarantee a solid, completely legal investment.” How much more can you ask for? Want to learn more about investing in raw land? Contact the Asset Quest team today!

 

How to Invest in Land

It takes considerable knowledge to understand the extent of one’s ignorance.” So goes an impactful saying that reflects human tendency to approach the unknown with doubt and trepidation. Today’s personal finance or investment scenario is a great example of how knowledge or rather the lack of knowledge can influence our decision-making process. The first thing that comes to your mind when you think about investment instruments like fixed deposits, provident funds, equities and stocks, mutual funds is an overriding principle. The principle is a product of continuous messages that come our way through ‘advisors’ be it family and friends, colleagues, financial media and the internet.

What are your thoughts when someone mentions land as an investment instrument? Chances are that it is not the most positive of reflections. Does ignorance play a major factor in this perception? We will make an attempt to dispense some myths about investing in land and inform readers of the best practices to adopt and pitfalls to avoid when it comes to reinforcing your investment portfolio with land as an asset class.

Let’s focus on an oft-ignored product in real estate that is land. Investment volumes are lower than other real estate products and returns are stable and are in the high category bracket if the locations are chosen correctly. Let’s get into details so we can explore the investment category to its full potential. Land investment includes different kinds of potential land investments like:

Residential development land, which is predominantly used to build houses. These plots can be used to build independent houses, apartment buildings and villas. Another option is commercial land whose intended use is commercial in nature like office space rentals or sale. Farm land is typically devoted towards agriculture, so if you plan to cultivate on it, then invest in the farm land in accordance with its fertility level. While recreational land might be part of or might qualify for several governmental programmes, it is necessary to procure permits from the municipality or you can take help from a developer.

According to a Knight Frank report,  land (134%) was the best performing entity of all investment options in terms of value appreciation between 2008 – 2015, followed by gold (87%) and Unit Linked Insurance (74%).

Land investment, like any investment option comes with its own set of advantages and challenges, which depend primarily on your investment goals. The main highlight of purchasing land is that it is a tangible asset and because of a constant and steady increase in demand, the returns are more or less assured over time. Land has better resale value with comparatively lower cost and property tax than residential properties. Another advantage is that land is available at most locations with different sizes; this makes it easier to invest in small portions and keep increasing the investment according to your savings. The primary challenge with this investment is that there is very little return versus the effort required in the short term. Geological surveys and other maintenance parameters might add to original purchase costs. Entering into land investment can be substantial due to many reasons. Few reasons why you should think about investing in land are:

•It is ‘Hands-off investment’
You don’t need to worry about too much of an extra cost for the upkeep of the area. In a residential property, one has to worry about maintenance, tenants and other issues. With land investment, you only have to worry about its management or minimal maintenance to prevent encroachment.

•Future plan
With vacant land, you will have many options like selling it, building your house, building commercial property or convert it into farm land. The sense of liberty is limited with residential properties like apartments or houses.

•Value addition for long term
Land investment is more affordable than residential property. With less need for maintenance, you will save a considerable sum of money. However, land investment can be tricky and also fraught with risks. In order to ensure safety of your venture, you will need to be mindful of a few things before investing:

Budget
Before you start research on your land investment options, take time to pan out your budget. Make a checklist:

•Evaluate your savings and income
To begin with, estimate your savings and debt-income ratio should you be availing of financing for this venture. Other investment instruments like fixed deposits or mutual funds, which are more liquid in nature might also be a good source of financing. Together, analyse the amount you will be investing along with the amount you will be left with. Investors should be careful while investing as the liquidity in land investment is less as compared to gold, fixed deposits and mutual funds.

•The amount you are willing to invest
After all the calculations estimate how much amount you will invest in land and keep in mind any legal or maintenance costs.

Research

This is probably the most crucial step in successfully investing in land. Exploring and collecting information regarding the investment is an essential step in making the right location and developer choice. Learn more about market trends and the news related to the area you are interested in. This information will add up to your overall knowledge regarding the sector and will aid your decision-making.

•Market trends
Investigate further on the recent market reports and trends in the real estate sector. Keep an eye out for news related to price, popular investment plots or areas, investment options, type of land investments and details on whom to contact.

•Pricing
When you are planning your different plot options, compare them on the basis of the amount and the quality they offer for that amount.

•City/ State development
City or State development can be a game changer. For example, Gurgaon, now a leading financial and industrial city, was a village up until the 1990s. Similarly Koramangala in Bengaluru, was once called Sollemangala (Solle means mosquitoes in Kannada) due to its remote nature but is now bustling with commercial and residential hub.

•Government policies or legal issues
The plot may be under litigation or may be due for a government project.

•Zoning
Also note that a few areas may be categorized as forest land or can be in a coastal regulation zone. Investigate and enquire about these factors before you invest. All the information you will obtain from local municipalities and development authorities.

•Location
Plots situated near to a well-developed city or an airport, railway station or business sector will be a great investment. This venture will also secure employment opportunities. Try to invest in areas in the proximity of such sectors, this will ensure maximum future returns.

Every metro and Tier II city has its growth corridors. Even tourist spots can be good investment destinations. If you want to steer clear from these variables, then make sure you invest in a location which provides you basic amenities at a good price.

•Workforce and labour
If you are planning to build a house or commercial property on the land or sell it to a developer, keep in mind the potential for employment prospects. If the plot is near a developed segment, the employment options will be aplenty.

•Public transport and amenities
If you are planning to develop estate on the land, it’s better to search for amenities like public transport, water supply, hospitals etc.

•Scope of growth
Always invest in land where you see possibility of growth and development. This judgement will be easier if you thoroughly research your options.

How long can you stay invested?

Plan out your long-term goal. Land is not a liquid asset and the efforts are considerable when it comes to finding a buyer at a fair price. Make sure you have an alternative source of income or savings that you can bank upon during times of crisis. Your land investments will gain on capital appreciation when you sell the land. Long-term goals like child benefits or a retirement corpus are more suited to land investments. Planning will help you maximise returns and turn your venture into a success.

Remember, turning ignorance into knowledge and action is more a factor of your approach rather than purely focusing on the negatives and challenges of possible outcomes. We will explore more land investments in the upcoming parts of this series. To learn more about investing in land, contact an expert member of the Asset Quest team today!

Investing in Land for Retirement: What You Need To Know

Choosing how to save for retirement can be a decision that takes years. After all, that’s the money that you’ll be living on during your golden years. Most people stick to 401ks and stocks, but what many people don’t know is that you can invest in land real estate to save for retirement. Investing in land real estate can be a great way to save money long-term, but with any investment, you need to know what type of land to invest in, what sort of returns you can expect, and what to avoid when investing in land real estate.

There are many benefits to investing in land real estate. One benefit is that if you invest in land in different areas, you will be protected if certain properties are hit by natural disasters or the value of one type of land real estate drops. Geographic and commodity diversity can keep your money safe even in a rocky market. Another benefit is that land real estate (farmland in particular) sometimes have higher returns than stocks do. Most stocks can be expected to produce a six to seven percent return over time), while farmland has produced a steady 11.5 percent annual return over the past twenty five years.

If you are looking for a low-maintenance investment, vacant land is a great option. It is cheaper to buy than developed land, and you don’t need to spend money doing repairs or renovations. While this is an excellent investment to make in the long-term, you will have to be patient. This investment will take time to make money. You’ll also want to keep an eye on the market to make sure you’ll be able to sell it at the best possible price. Consider looking into vacant land properties in areas that are seeing an increase in population or jobs. This land will is likely to become more desirable over time, and you’ll be able to sell it at a higher price than what you bought it for originally.

When investing or buying vacant land, you should always know who you are buying from.Be careful of people who have only owned the land for a short amount of time and seem very eager to get the land off their hands. Vacant land takes times to accumulate value, so it’s suspicious if people only own it for a short amount of time. The owners might know something about the land that makes it less valuable. This is a perfect example of why it is so important to find an agent with the expertise and experience needed to conduct land real estate transactions – like an Accredited Land Consultant (ALC).

Timberland or forestland are also excellent long-term investments. The returns for timberland real estate tend to move counter cyclically to other markets.  Because of this, it will add portfolio diversification, lowering the risk of losing money. Timber is also a hearty crop that can provide you with returns for many years.

You should invest in timber or forest land only if you are planning to retire ten or more years down the road. You’ll have to spend money to plant trees and won’t get returns as they grow, but once the trees reach maturity, they will provide steady returns.

Although investing in land real estate to save for retirement is an excellent option, there are some key factors to look out for. Keep the following in mind while you look at different properties:

-You need to know the land inside out. You need to know everything about the land you are investing in. This means zoning, mineral rights, any environmental hazards on the land, usage restrictions, access easements, taxes on the property, and the likelihood of natural disasters in the area. If you think you are asking too many questions, you are not. Even small issues can end up costing you a lot in the long term. For example, you could have an incredible property with full mineral rights, but if the soil drainage is poor, the value of the land could drop so dramatically that any other positive factors wouldn’t matter at all. Finding an ALC near you can help ensure that you see the whole picture when it comes to investing in a piece of land.

-You need to be crystal clear on the taxes. This was mentioned in the previous bullet point, but it’s so important we added it again. Some properties have taxes that are so high that the taxes eat up any returns you make on the land. Speak with your land agent about this and make sure you understand what your costs will be before investing in a property.

-Are there wetlands on the property? Thanks to Waters of the US (WOTUS) and other laws, if you have wetlands on your property, huge parts of your land might not be useable. This could cause the value of your land to drop dramatically.

Investing in land real estate can be a great way to save up for retirement. Land real estate is a valuable and limited community that, historically, continually grows in value. If you do your research and spread your investments out over a few different types of land, you could have a successful start to saving and creating a well-balanced, diversified portfolio for your retirement. Want to learn more? Contact an expert member of the Asset Quest team today!