When done well, 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? To help you make a wise choice, here are 12 tips for commercial land investors to help you make a solid choice.
- 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
1. Buy land in the path of development
Without a doubt, 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-an-coming areas. Or look for land in the direction of a municipality’s expansion. Then buy land in the path of development with a view to selling it in a few years for a nice profit.
2. Invest in an asset that requires less attention and expense
Some investors prefer and hands-off approach. Owning an undeveloped piece of commercial land or vacant lot rarely requires commercial land investors to do anything. Also, it is a low (or no) maintenance property with no systems to upkeep—no plumbing, electrical, data, or other infrastructure. Also, landowners pay fewer bills. 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 now. Research banks and lenders—locally, nationally, online—to learn who does- commercial real estate loans. 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.
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. So 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. What’s more, be prepared for environmental tests for things like hazardous materials or underground tanks and pipes.
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. So if you’d like to park your money somewhere and wait for the value to rise, land could be a good option. For example, buying a vacant piece of land in a high-growth area can benefit you in a few years. Especially as towns and cities grow and expand. By holding a piece of land for a few years or longer, commercial land investors can reap a sizable return down the road.
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 you 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. For example, some landowners lease space to billboard companies. Also, if the land isn’t in an urban core, you could possibly lease it to farmers or hunters. Either way, there are ways to make money from vacant land.
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. At the same time, you need to be strategic about where you purchase land. 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. This is especially true in certain areas of markets. And since many investors don’t see the benefits of owning land, commercial land investors often find less competition for commercial land.
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 simpler than owning other types of properties. At the same time, 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 rather than a financial blunder.
To learn more about investing in vacant land, contact CXRE today.