Investing in land is not as simple as buying the first empty plot you see. In fact, there are numerous types of land that actually fall under this real estate investing strategy. Those hoping to get started should do their part to learn about the various raw land investments available. Read through the following list for an overview of the best land investments:
- Commercial and residential
- Row crop and livestock
- Small farm land investing
- Issues to consider
Commercial and Residential Land Investments
Commercial and residential land investments are lots zoned for a specific use, that are yet to be developed. These are one of the most common types of land investments for a few reasons. The most obvious is: these land plots are already destined for a certain type of development. This not only gives investors a starting point when analyzing the deal, but it can also help with the financing process. Lenders want to know what the return will be on a piece of raw land, and with commercial and residential areas the purpose of the investment is already clearer.
These area types do require a fair amount of planning. Not only do investors need to select the right area to purchase land in, they also need to assess the market before deciding what to develop. For example, will a retail space or mixed-use building have a higher return on investment in that area? Even the most seasoned investors will need to do research before deciding on anything.
Row Crop and Livestock Land Investing
Row crop land investments can be trickier for average real estate investors, but when executed correctly can be quite profitable. The reason being that row crow and livestock land investments require investors to be familiar with real estate and have a knowledge of the agricultural industry. Row crops refer to “land-based commodity” crops, such as corn or soybeans. Investors need to analyze the market price and performance of whatever agricultural product the land is designed to be used for. This means paying attention to the farming companies that would lease the land, and their competitors.
Small Farm Land Investing
Small farm investing differs from row and livestock investments because of what the land is used for. This type of farm land typically refers to areas used for timber, minerals, orchards, vineyards, and more. These land types still require exposure to basic agricultural knowledge in order to make profitable investment decisions, though these are often considered easier to break into when compared to row crops. Part of the reason for that is because it is much easier for investors to obtain smaller plots, depending on what they can obtain financing for.
Raw Land Issues to Consider
Although there are many ways to invest in raw land that can benefit investors, some issues that may arise that you should consider before getting started. Land use restrictions can dictate how a land owner can use the laws depending on the physical features of the land, depending on whether or not your land lays on a flood plain. You should also be sure to consider how your land will gain access to utilities, how remote your property is, and property tax expenses before investing in a piece of raw land.
Row crop and livestock land plots come with added responsibilities. Market fluctuations and seasons of bad weather or crop disease can affect farmland. Each of these factors could negate the profits of those using the land. According to Investopedia, some exchange-traded notes (ENTs) can provide investors with exposure to agricultural investments as they learn how to effectively evaluate these land types.
Often, small farm land investing comes with certain legality issues. Mineral rights associated with the land that could designate who can profit from the resources on the property. Additionally, there could be regulations on the access to natural resources, such as water flow to the area. Luckily, this is all information you can obtain before purchasing the property. It is crucial that investors mind their due diligence before purchasing any type of raw land investment, especially farmland.