Limitless Possibilities, or Limited Returns? The Pros & Cons of Investing In Vacant Land
Purchasing an existing property isn’t the only way to invest in real estate. Undeveloped or vacant land is another type of real estate you can purchase for investment. Why invest in vacant land? There are definitely some advantages to this choice with some drawbacks as well. Here are some of the main pros and cons of buying vacant land:
Pros
Affordable - Compared to commercial or residential properties, undeveloped land is much more affordable. The purchase price per square footage is almost half that of developed land. This also keeps the property taxes low, as well as utility bills—since there are no utilities to pay.
Flexible - Undeveloped land can be a blank canvas for your real estate ideas. Depending on the size, you might build one or more residential homes or even larger multi-unit structures. Many owners also choose to lease part or all of the land to farmers and ranchers who can use the undeveloped outdoor space.
Easy to Buy - Buying undeveloped land is a simple process. Most of the time you can buy with cash instead of go through the entire process of applying for and paying a mortgage. This makes the buying process quick and easy and also means you have full ownership of the land right from the start.
Cons
No Immediate ROI - One downside of an empty space is there is nothing there to generate income. You might have the freedom and feeling of infinite possibilities for future plans, but you’ll have to wait quite a while before you see any returns. Unfortunately, you will still need to pay your property taxes. Without immediate cash flow to balance the regular payments, you might find that an inexpensive purchase becomes more expensive with time.
No Infrastructure - Undeveloped land is completely lacking utilities and infrastructure you’d need for potential properties. There is no electricity, sewage or septic system, internet connection or established roads or pathways. You will need to decide if you’re connecting to local utility systems or if you plan to set up your own infrastructure “off the grid.” Not only does this take time and strategic planning, it can be very expensive.
Zoning & Permits - In order to create or connect to existing infrastructure, you will need to apply for permits and abide by local zoning laws. These parameters also determine what you can and cannot build on your vacant land. Zoning laws decide how many individual lots you can have on a piece of land, as well as whether you can have commercial or residential properties. To connect to utilities like sewage and electricity you’ll need to apply for permits. Buying the land itself might be a quick process, but making sure it’s suitable and approved for you to develop can take a long time.
Buying vacant land might seem like an easy investment, but it can come with some downsides. If you can afford to wait until a piece of land can generate income, you’ll benefit from your hard work and patience. It’s always important to research how land ownership differs from one area to the next and factor any differences into your financial plans.
