What Is Your Goal in Purchasing Land?

 What Is Your Goal in Purchasing Land?

Before you actually purchase a piece of land, you have to decide what your goal is for the investment. There are several different strategies to consider and it is not a one size fits all approach. Two different investors could have two very different approaches to the same piece of land. In addition, the same investor may have two different approaches for two different plots of land.

Consider these strategies to consider when buying land:

Buy and sell: In this approach, you are basically flipping the land. You believe you purchased the land below market value and are hoping you can find another buyer who is willing to pay at or more than market value. You are hoping for a quick sale with little to no additional work on the land on your part.

Buy and hold: In this approach, you buy the land and hold onto it for a period of time. You believe the land will appreciate in value. The investor purchases the land in the hopes that they can sell it to a developer in the future as the area becomes more popular.

Buy, develop, and hold: In this approach, you are purchasing a raw piece of land with the intention of developing the land yourself. For example, you could build a complex of flats or apartments that you will rent out to residential tenants. You could also decide to build a Mall, which you could rent out to retail tenants.

Buy, cultivate, and hold: In this approach, you are more interested in using the actual land, than building property on the land. For example, you may want to grow crops on the land, use it for livestock, or set up a farm. You will actively manage the land and hope to make a profit off of what the land can produce.

Buy, go through the entitlement process, and sell: In this scenario, you will purchase the land and then go through the process of having the property zoned for a specific use. For example, there may be a plot of land that was zoned for commercial use, but now that the area has developed, it would be an excellent site for a new high-rise residential building. If you are able to get the land rezoned for residential use, it would make the land more valuable to potential developers and more desirable, as it is one extra step they do not have to do themselves.

Buy, develop, and sell: In this case, you buy the land with the intention of developing the land yourself and then selling it to an end-user. For example, you buy the land, build a new construction home and then sell it to a buyer who wants to live in it.

Buy, develop, and rent: Finally, you could develop the land and then rent the land to someone else. For example, you may buy land and decide to put a parking lot on it because there isn't ample parking in the area. The owner of a high-rise building nearby asks if they can rent from you because they do not have enough parking for their tenants.

Risks to Consider When Buying Land

An undeveloped piece of land certainly seems to hold endless possibilities. However, you will soon discover that there are many restrictions and challenges you will face as you try to develop or sell this land. The government may restrict the type of property that can be built or the way the land can be used. You may encounter environmental problems, such as flooding.