Investing in land is unlike any other type of real estate investment, in part because of the flexibility it affords. Improved land gives the owner only three choices: keep it the same, add on to it, or tear it down and rebuild. Unimproved land is a canvas waiting for the artist to make it a painting. Investing in land has some important considerations however. First and foremost is being sure you understand what you want to accomplish with the land and making sure that any you purchase will meet those requirements.
Land Use – Governing bodies make determinations about what property can be used for. Land can be restricted to specific types of improvements, so one must be careful to obtain land that can be used for its intended purpose. Extreme care must be taken to not purchase unusable land such as that deemed to be protected from development due to the presence of endangered species.
Surrounding Uses – Even if land use regulations were to permit it, you wouldn’t want to put a residential development in an area without clean air, such as near a landfill.
Utilities – Public services such as water, electricity and sewage disposal should be available in most cases. Remote areas that are lacking in these services may be fine for a hunting getaway, for example, but not very desirable for a year-round residence.
Tax Drawbacks – Land is cannot be depreciated so as such does not provide the same tax benefit as improved property.
Income – Although land can sometimes be leased, most of time it provides no cash flow to help with the mortgage, taxes and other expenses. It can be difficult to obtain financing in part because of this drawback. Land is a complicated creature from an appraisal standpoint since so many variables affect its value. Be sure to do your homework and seek professional assistance with this investment choice.
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