The Pros (and Cons) of Investing in Land

  • I know everyone around here seems to think vacant land is a great investment, and maybe it is, but I'd to see some real, unbiased opinions about the upsides and the downsides of investing in land.

    Surely, there must be plenty of things about land that are NOT as advantageous as other types of real estate.

    What are those things? What kind of an investor would be better off sticking to houses and improved properties rather than land?

  • An investor that wants to passively own land they buy at market value and hold in hopes it increases in value...this could work but imo the land banking days are gone.

    Land is a great investor for someone actively aquiring it below market value and flipping or selling on terms.

  • LIM

    The way most folks in this group (and this niche) invest in land is such that it produces zero cash flow until sold. Seth has done some interesting articles (search the blog) on how to produce income while holding land such as renting it out to coffee farmers - but typically no cash flow until sold. I.e. the income stream is all about buy low-sell high and/or sell on terms ad collect 7 to 12% interest on your money (which in most circles is a decent return). Sometimes it can be feel like a long and nerve racking 60 to 180 days between cash out and cash back in.

  • LIM

    Matt Payne I invest in both rental properties and land. Here are the pros and cons that come to mind of land flipping as compared to rental properties.

    Pros of land flipping

    • Less capital required (depending on type/size/location of land)
    • No tenants, toilets, etc to deal with
    • Buying process is generally simpler than houses - no home inspections, fewer docs to sign, usually buying with cash so no mortgage to deal with
    • Returns can be incredibly high and quick

    Cons of land flipping

    • Not tax advantaged; profits are taxed as ordinary income
    • Income is not recurring and consistent (unless you are selling land on terms...and then you have to deal with non-payment when that happens)
    • Active investing rather than "passive" have to spend the time and energy to keep buying and selling (or have partners/VAs to help with this)

  • Thanks for those bullet points Linda Hastings. That helps a lot.

  • Mod LIM

    Linda Hastings, I think that's a great summary, and regarding this item:

    • Buying process is generally simpler than houses - no home inspections, fewer docs to sign, usually buying with cash so no mortgage to deal with

    I agree and was just discussing with others a few days ago how every time I start to get a bug to maybe try my hand at fix-and-flip or wholesaling houses, I think about how I (or someone very reliable who represents my interests) would have to lay eyes on every house I put an offer on -- something you certainly don't have to do with land -- and I just come back to the conclusion that the land niche is a good fit for what I'm trying to do right now.

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