Real Estate

Why buying vacant land can be an incredible real estate investment

When you think of real estate investing, you probably think primarily of different types of residential or commercial buildings. And it’s true that from single-family homes and apartment buildings to retail stores, offices, and warehouses, most of the real estate investment we discuss here at The Motley Fool involves buildings of one type or another.

But with all its potential and potential, vacant land can be a very exciting investment. Let’s take a look at some of the options when investing in vacant land, as well as some of the pros, cons, and considerations.

For sale a sign in front of an empty land with grass and trees.

Image source: Getty Images.

thinking big

If you can find a reasonably good deal on a large plot of land in the right area, it may be worth buying and keeping. Its value will likely rise over time as demand grows, and there are several ways you can make money from it in the meantime.

Exploration possibilities, depending on the characteristics and location of the plot, include selling mining rights, designating the property as a hunting lease, or even renting it out as farmland. You can also think long term by planting part of the land with timber while still making an income through one of the above methods.

From 2020 to 2021, the value of farmland, farmland, and pasture land in the United States increased by about 7%. This is a huge one-year increase.

Current developments in the housing market are also a huge advantage for land owners. After a major downturn, home construction is back in a big way. New home construction is up 22% from this time last year, making the prospect of starting a residential project worth looking into if you think you’ve found the right land for this type of project.

small scale thinking

But what if you don’t have hundreds of thousands of dollars to invest in a huge plot of land? In this case, you may simply want to take it one lot at the time – one residential lot, that is. If you can buy an undeveloped or “raw” plot of land in a new or desirable residential area and make some improvements to the land, you may be able to sell it at a big profit to someone looking to build their dream home. Think of this as the ground version of a house flip.

These improvements could include clearing a site on the land where a home could eventually be built and creating easy access to that area, if needed. This could be an effective way to take advantage of the home building boom without having to make a huge investment up front, perhaps especially in a growing suburb. This way, you can take it one piece at a time.

Should you consider vacant land?

If you invest in real estate primarily in the form of homes or commercial properties, vacant land can feel like a completely different ball game. But the most important difference is that you will need to make sure that any land you are interested in will be suitable for the intended purpose(s) before you pull the trigger. This can include making sure that most of the ground is high and dry and that it is not subject to any zoning restrictions that could derail your plans.

The huge potential of the vacant land is a big part of its appeal. This is minimalism, where you don’t have to do anything but hold it and wait for it to be appreciated, if that’s what you prefer. But the number one reason vacant land is a safe investment is kind of a cliché, and with good reason: They simply don’t make it anymore.