Successful land investing, like any type of investing, requires a lot of due diligence. Investing in land often requires travel, too, since there are several things a buyer cannot know about a piece of land before seeing it in person. Google Maps is a great resource, but it is not a substitute for visiting in person.

While there’s a significant amount of information available about property investing, there are fewer resources for learning about investing in land. Here are five things anyone interested in engaging in this potentially lucrative investment option should know before investing in their first piece of land.

1. It could take years to make a profit on vacant land

The land with the best future value is often far away from the city. Since there likely won’t be any utilities or sewers nearby, the owner will need to wait for development to reach the area. It is vital to do due diligence on remote land to determine the potential return on investment. The owner will have to pay taxes every year and may be required to perform basic maintenance on the property. Before buying, it is important to weigh these expenses versus the potential profit years down the road. The payoff could be quite substantial, but it could also be negligible or nonexistent if the buyer doesn’t take the necessary steps to determine the land’s potential value.

2. Land purchases are typically made with cash 

Banks typically won’t lend money to people who simply want to buy land to hold as an investment. Because it could take 20 years or longer for a plot of land to appreciate in value, lenders are usually unwilling to assume the risk. Investors paying out of their own pocket for land must take precautions, such as visiting the property in person and performing a title search to ensure there are no potential issues. Those who want to tap into mortgage financing might be able to get a construction loan and eventually a mortgage if they put a home on the land. Of course, this might only be an option if there is already sewer and utility service in the vicinity.

3. Change the zoning to make an investment opportunity more appealing. 

To sell a large piece of property zoned for agricultural use, for example, the owner will need to work with the local government to change the zoning classification to either residential or commercial in order to make a profit. This is not always a simple process, as cities and towns typically have a plan for how the land in their jurisdiction should be used. Changing the zoning for one piece of land could cause problems for surrounding home and business owners. Potential buyers should contact the zoning office before they make an offer. Find out if a change in zoning is possible. Although some developers will do this, not completing this up front will reduce the value of the property and make it a less lucrative investment for a developer.

4. Find out why the land is vacant. 

While it might not be a swamp, there could be other issues that make the property less than desirable. Perhaps there was contamination with the land, or the sellers were unable to get a zoning change to make the land appealing to a developer. Prior to making an offer, potential buyers should pay for an environmental report to find out if the soil is contaminated. Knowing why the last owner didn’t hold onto the land is essential to determining potential return on investment. Even worse, if there is a problem with contamination, the new owner could be responsible for the cleanup if it’s discovered later.

5. The use of neighboring land can have a huge impact on the value of a property.

Even if it takes a while, developers will typically be interested in well-located, desirable land. However, if the land is located next to a prison or a power plant, for example, very few investors would be interested in purchasing it. Residential development is the most profitable way to add value to a large piece of land. In addition, if there was formerly a gas station, auto repair shop or factory located near the land, the surrounding property might be contaminated. When the land is undesirable because of the surrounding property, it will be difficult to sell to a real estate development company. Knowing the status of the land for sale as well as the surrounding land can help an investor make a sound buying decision.

Investing in land with the intention to flip it quickly often leads to disappointment. By conducting comprehensive due diligence, it is possible to find valuable properties offered at attractive prices. Because it can take years for the surrounding area to develop enough for the land to have much value, it’s important for any prospective investor to be prepared to pay the taxes on the property until a developer shows interest in the land. During that time, working with the government to change the zoning classification or correcting any topography issues can also help increase the value of the land.

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  • Dr. Slim Feriani

    Dr. Slim Feriani is Executive Vice President/Finance and Investments and Chief Financial Officer at ROI Land Investments Ltd. (OTCQB ticker: ROII). Dr. Feriani completed an MBA and Ph.D. in finance and investments at George Washington University, where he taught finance and international finance for seven years and currently serves on the advisory board of the business school. He has 20 years’ experience in global markets across all asset classes, and he is a specialist in global investing and emerging markets.

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