Investing in commercial land can add value to your portfolio. On the other hand, commercial land investors who make simple mistakes can cost themselves money down the line. So how do you make the best decision when buying vacant land? Here are 12 tips for commercial land investors to help you make a solid choice.
- Notes on Alternative Investments
- Why Invest in Vacant Land?
- Tips for Investing in Commercial Land
- 1. Buy land in the path of development
- 2. Invest in an asset that requires less attention and expense
- 3. Get pre-approved for a loan
- 4. Target vacant land for your search
- 5. Commercial land investors must know the zoning and usage laws
- 6. Do your due diligence
- 7. Always work with a commercial real estate professional
- 8. Use the Buy and Hold strategy
- 9. Consider vacant land a long-term investment
- 10. Consider alternative ways of using vacant land
- 11. Commercial land investors can buy a lot for a little
- 12. Search for land where there is less competition
- Tips for Commercial Land Investors
Notes on Alternative Investments
While many commercial real estate investors focus on the four main property types – multifamily, office, retail, or industrial – there are many other options. Investing in land is just one of these alternative investment options that savvy investors use to build wealth and develop a diversified real estate portfolio.
To learn more about commercial land investments, or to speak with an experienced commercial real estate professional, contact CXRE today.
Why Invest in Vacant Land?
Buying raw or vacant land offers a multitude of options for investors and developers. When purchased at the right time, in the right area, raw land can have a high return on investment. That’s because land is a limited resource – one that developers need if they want to expand their businesses.
In addition, land is often a more affordable investment than traditional real estate properties. The maintenance costs are significantly lower than with traditional real estate, meaning all you have to do is purchase the land, hold the land, and sell it for a profit to a developer when the time comes. This hands-off approach is one of the main benefits of investing in vacant land.
If you are a developer, or partner with a developer, buying vacant land is essential to building new properties to increase monthly income. Buying vacant land in an up-and-coming area can be a lucrative investment for developers. As the area grows, the land becomes more valuable, and any building built on the property will also increase its value.
However, there are some considerations that improve your chances of gaining a significant return on investment when purchasing commercial land.
Tips for Investing in Commercial Land
1. Buy land in the path of development
Land is a limited resource. This factor is one of the best reasons to invest in commercial land. Because there is a limited supply of land (especially in urban or developed areas), look for land in up-and-coming areas. You might also look for land in the direction of a municipality’s expansion. Buying land in the path of future development gives you an opportunity to sell it for a profit in just a few years’ time.
2. Invest in an asset that requires less attention and expense
Some investors prefer a hands-off approach. Owning an undeveloped piece of commercial land or a vacant lot requires little to no maintenance or expense. There are no systems to maintain – no plumbing, electrical, data, or other infrastructure. While commercial land investors do pay taxes and possibly other bills, there are usually no electrical bills, no water bills, no bills for IT services, and no property management costs.
3. Get pre-approved for a loan
If you are new to commercial real estate investing, financing can be tricky. If you plan to take out a loan to purchase commercial land, start inquiring about financing long before searching available parcels. Research banks and lenders—locally, nationally, and online—to learn who does commercial real estate loans for raw land. Also, first-time investors need to be aware that the commercial lending process is much different than loans for residential properties. The qualifications are more stringent, and you may need to put down as much as 20%.
4. Target vacant land for your search
Vacant lots tend to be eyesores, even in desirable areas. Under the right circumstances, a motivated seller with a piece of land may be wishing for commercial land investors to show interest in the property. If you can find the right piece of land and a motivated seller, you could purchase the land at a considerably favorable price.
However, finding the ideal parcel can be time-consuming. Partnering with a commercial real estate firm like CXRE can help save you time and money by identifying ideal properties for you.
5. Commercial land investors must know the zoning and usage laws
Nothing would be worse than investing in a piece of commercial land, only to later learn that it isn’t zoned for commercial use. As a result, property zoning should be one of your major concerns. Before you invest, make sure you know the property zoning and usage laws for a piece of land.
6. Do your due diligence
As is the case with any investment, potential commercial land investors must do their diligence. Unless you’re a land expert, it is wise to visit the property and see it firsthand. This will let you see the topography in a way that maps can never show. Also, be sure to inquire about the availability of utilities. Finally, be prepared for environmental tests for things like hazardous materials or underground tanks and pipes. All of these issues could cause potential problems or represent significant financial setbacks if not addressed.
7. Always work with a commercial real estate professional
Commercial real estate transactions are inherently complicated. And although buying land may be slightly easier than buying an office building or retail property, you still need a pro on your side. CXRE has land specialists who can walk you through the process and help you find suitable commercial land for your portfolio.
8. Use the Buy and Hold strategy
Overall, land is a very hands-off investment. If you’d like to park your money somewhere and wait for the value to rise, land could be a good option. As cities grow and expand, land can quickly become more valuable. Therefore, you might consider purchasing a lot in an area expected to grow within the next 5-10 years. Holding the land is often the best strategy to realize a maximum ROI.
9. Consider vacant land a long-term investment
Land purchases are long-term investments. Although it may take some time to gain value and see significant returns, land can be a relatively cheap long-term investment. Especially when compared to fully developed office buildings, medical facilities, or commercial warehouses. As stated above, land requires little to no maintenance. And unlike buildings, land doesn’t wear out. Also, if you purchase the right piece of land in the right location, you’ll experience very little depreciation. In the long run, a modest investment today could pay off big returns down the road.
10. Consider alternative ways of using vacant land
Did you know that commercial land investors can make money off of vacant land? If you’re holding the land for a few years, there are a few ways to make money off of it while you wait. For example, some landowners lease space to billboard companies. And if the land isn’t in an urban core, you could lease it to farmers or hunters. There are several creative ways to make money off the vacant land while it increases in value. Our commercial land pros can give you more insight into income-generating strategies.
11. Commercial land investors can buy a lot for a little
In some areas, commercial land investors can purchase 50 or even 100 acres of land for very little money per acre. However, though the land is affordable, it’s important to purchase parcels in developing areas. As we said above, buying land in the path of development could bring great returns. Yet your purchase will probably be based on a good bit of speculation. Due to this, you might have to wait a decade or more to see these returns.
12. Search for land where there is less competition
Some commercial real estate markets are crowded with investors. You could consider purchasing land where there is less competition. Many investors don’t see the benefits of owning land, so commercial land investors often find less competition. The further you get from a crowded urban center, the more affordable commercial land will be. However, the best chances for high returns are closer to populated areas.
Tips for Commercial Land Investors
Investing in commercial land can add value to your portfolio. Overall, there are several benefits to investing in land. In some areas, commercial land investors find less competition from other investors. Also, owning land is a much lower-maintenance option. It requires less upkeep, maintenance, and cost. But buying land and holding onto it for a few years can net you a significant return.
With these 12 tips for commercial land investors, you can make a quality investment and avoid a financial blunder.
To learn more about investing in vacant land, contact CXRE today.