How to Invest in Land

Investing in land is a time-tested strategy for building wealth and diversifying your portfolio. Land investments can offer various opportunities, from developing residential or commercial properties to agricultural use or holding the land for long-term appreciation. Unlike other asset classes, land is a tangible, finite resource that often appreciates over time.

However, successful land investment requires careful research, and an understanding of zoning laws, market trends, and potential costs. Whether you're a beginner or an experienced investor, knowing how to navigate land investment can help you make informed decisions and maximize returns.

Types of Land Investments

Even if a land investment seems right for you, there are multiple types to consider. Land investments can be divided into three general categories.

Commercial and Residential Land Investments

Land with existing structures gives an investor a fairly ready-made income generator. These structures can include commercial properties like: 

• Office buildings 
• Retail spaces 
• Industrial complexes
• Hospitality services 

Properties could also have residential units such as single-family homes, apartment buildings, vacation rentals, and others.

Smaller investors can get in on commercial and residential land through real estate investment trusts (REITs) and exchange-traded funds (ETFs) rather than have direct ownership of a property. Market research and finding the right area are paramount to making such investments.

Livestock and Crop Farmland Investments

Properties like cultivating orchards, vineyards, timber farms, cattle ranches, and crop farmland can generate appreciation and considerable income from their products. Such properties are subject to market volatility and environmental factors. However, they can be consistent revenue sources when given the proper management.

Small Farm Investments

Timber farms, mineral development land, vegetable gardens, orchards, vineyards, and recreational lands are smaller farm investments that can earn solid income. Investors can scale the land they purchase to generate consistent revenue. 

Land Investment Strategies

Professionals use these approaches to land investment to unlock as much profit as possible.

Buy and Hold

One of the most common investment strategies for any security is buying land at a discount and holding onto it over the long term. This approach relies on appreciation of the land’s value over time, primarily if the investor acquires it for below market value.

You may acquire land at auction rather than brokering a deal. However, you likely won’t have the chance to inspect the property beforehand, and it may also be subject to “as-is” conditions.

Develop the Land

You could choose to develop the land yourself to raise an income-generating enterprise. Land development can indeed be a profitable venture, but this depends on a range of factors, including: 

• Zoning regulations
• Utility availability
• Environmental assessments
• Design and market analysis

As with other commercial enterprises, extensive research is vital before deciding what to build. Estimate the development cost and gauge how the development will impact surrounding neighbors and properties.

Lease the Land

Leasing land to farmers, ranchers, loggers, companies, and third parties can generate steady income with relatively low management. You may also benefit from tax advantages, like property taxes and depreciation deductions.

Subdivide for Land Sales

You may divide your land purchase into smaller parcels and sell them separately. In many cases, subdividing is a more marketable option that attracts multiple buyers for higher per-square-footage rates. This option requires mapping and legal documentation for zoning and regulatory concerns.

Factors to Consider

When buying a plot of land for investment purposes, consider the following factors.

Location

The most crucial factor to consider is where the property is situated. Properties close to stores, gas stations, schools, emergency services, and highways can be more convenient and, therefore, more valuable.

Topography

Assessing an investment property’s physical quality is also essential. Soil type and quality, tree density, elevation, and other physical factors directly affect construction costs and overall land value. Building a research team with expertise in natural landforms is crucial.

Zoning

Get clear on local zoning ordinances that may dictate what kind of uses are legal for your property, such as residential, commercial, and mixed-use. Government building plans, like the construction of new highways or power plants, may be affected by such regulations.

Environmental Issues

Environmental concerns like flooding, endangered species, contaminated groundwater, riparian rights, and waterway access may impact raw land. Having a qualified environmental expert analyze how your land development might affect sustainability and conservation issues is a good idea.

Access to Roads

Easy access to local roadways is important in estimating a land’s value. An easement may be necessary before finalizing the purchase. If the roads that lead to the land are privately owned, you may need to obtain legal permission or pay a fee.

Availability of Utility Services

Depending on the use of your land, you may need to invest in utilities like: 

• Septic systems 
• Water wells
• Electricity 
• City water lines 
• Cable networks 

It’s especially crucial to check cell coverage in the area. Properties with solid signal reception may be more attractive.

Land Investment Tips

Consider taking these steps when preparing to purchase land for investment purposes.

Understand the Goal of Your Investment

Get clear on your overall objectives and aims of land investment. Whether your goal is to preserve and grow wealth, take advantage of capital appreciation, or generate income, your investment goals will directly impact your strategy.

Research the Region

Look into data that applies to the area of your investment property. Examine metrics like 

• Employment rate 
• Average household income
• Demographic and population trends 
• School quality 
• Crime rates 

These statistics will help you learn more about the region and decide what to do with your investment.

Check the Water Waitlist

Some communities have restricted or prohibited new water connections due to shortages over the last 20 years. Check city regulations or contact local water utility companies to find out whether there’s a waitlist for new water hookups and how you can get on it.

Check the Tax Situation

Your property may be subject to stipulations on income tax for residents and businesses. However, it may be in line to qualify for tax breaks for specific approved uses (such as farming). These factors can affect ownership costs, cash flow, and overall returns on investment.

Check Your Mineral Rights

It’s imperative that you understand all conditions of mineral rights on your property, including royalty terms, the types of minerals or resources that ownership covers, and any limitations or restricted assets on your property. These factors can determine your financial stake and potential mining or drilling by third parties.

Is Land Investment Right for You?

Investing in land can be a smart financial decision, but it’s not for everyone. To determine if it aligns with your goals, consider your investment strategy, risk tolerance, and financial resources. Land investment is ideal for those looking for a tangible asset with long-term growth potential and are willing to navigate zoning laws, market trends, and potential holding costs.

However, if you prioritize liquidity or quick returns, other investment options might be more suitable. Understanding your objectives and conducting thorough research will help you decide if land investment is the right choice for you.

Frequently Asked Questions