Now that we understand the potential benefits of a raw land investment, it’s time to take a look at the various ways investors can make money by investing in land:
- Divide a single plot into several plots to increase its value.
- Develop on raw land to increase its use and value.
- Buy and hold raw land, as it has historically appreciated more often than not.
- Lease the land, long or short-term, for a number of reasons to collect rent.
Subdivide for Land Sales
The first way investors can make money off their raw land investment is by subdividing it for land sales. Investors have the potential to increase the total land value of their investment by separating it into smaller lots and selling them individually to buyers. In many cases, the subdivided land can be more valuable than the whole. This is due to marketability, and the fact it might be easier to find a buyer for a smaller, more affordable parcel of land, as opposed to one large lot.
The subdivision process of raw land consists of two parts: mapping and legal documentation. The mapping aspect refers to the proposed subdivision area and how it should be defined, while the legal documentation involves submitting the proposed subdivision, which generally includes an application and fee, to the local county. If they approve the application, the subdivision mapping is recorded in the county records.
Develop It
As cities expand, the flexibility of raw land investing continues to be its biggest strength. For many investors, one of the more popular ways of making money with raw land is by developing it into something more.
Depending on the location and zoning regulations, a raw land investment can be developed into a plethora of things, including a residential, multifamily, or even commercial property. You can sometimes develop a raw land investment into multiple entities, which can ultimately produce a multitude of revenue sources for investors. In addition, this land can become very valuable over time as home and rental prices go up.
Buy and Hold
Thanks to inflation, one of the primary sources for a return on investment with raw land is through appreciation. Because the price of land today has the potential to become more valuable in coming years, buying and holding onto undeveloped land has the potential to earn viable returns for investors, especially in the long-term.
In addition, there are various options for investors to purchase raw land below market value. From auctions to county tax sales, investors have numerous options to obtain land at discounted rates, which will only enhance their ability to earn a positive return. Additionally, investors should conduct their due diligence when purchasing land through the auction process. In many cases, these deals can be full of risk with little-to-no upside.
Lease It
There are many businesses looking to lease land on a monthly and yearly basis. Generally speaking, these operations need undeveloped land to conduct their operations. A land lease or ground lease allows individuals and/or companies to rent land rather than purchase it. In addition, you can lease a raw land investment for other purposes. This includes billboard rentals, cell towers, ranchers, and utility companies. This method of earning a profit is very similar to other types of leasing programs. The goal is to earn a monthly return on the property through a lease agreement.