Why Buying Land is Probably not a Good Investment

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Every other day, someone contacts us seeking an agent to help them buy land in some middle-of-nowhere place.

They typically heard it’s a good idea to buy land “because they’re not making anymore of it” from some online influencer.

Why on earth would someone willingly put themself through these headaches? Why are you making things harder than they have to be?

99% of the time it is a bad idea to buy raw land!!

-@Blackrealtors

Call that phrase some sort of limiting belief, call this a rant, call it what you will, but we need to shout loud enough to overcome all of the nonsense being spewed by many people online.

Most of them don’t what the hell they’re talking about, but they may have a little money, a presence on social media and a $99-today-only-wealth-building course to sell you.

If this post prevents even one person from making a silly mistake, mission accomplished. Everyone else can continue with this foolishness.

That said, a small percentage of people actually know what they’re getting into so by all means, carry on, this ain’t for you.

Land is Illiquid

Here’s the other side of it from people who contact us who actually own land.

Many were fortunate enough to inherit raw land from their grandparents and they contact us seeking a realtor to help them get rid of it at damn near any price because it has become a financial burden. They pay property taxes and have realized what a pain in the ass it will be to try to improve this land.

The reality is that most realtors don’t have any experience selling land. They also tend not to take on land listings because it’s not worth their time to try and sell some 30K parcel of land. Sorry, it’s the truth.

In other words, if you buy land and you don’t have the means to improve it, you might be stuck holding the bag.

cash for land real estate

You better have Cash

You want land, ok, where’s the cash? Lenders don’t finance land purchases. You’re not getting a loan from the bank despite what many may tell you.

Think about that. It should be a bit of a red flag that a lender doesn’t consider raw land enough collateral to feel comfortable giving you a loan.

What if you default on the loan? The bank doesn’t care if they take back the land because they know it’s ridiculously hard to sell it to the next person.

Structures are better investments

Ok, so what if you have the cash? Do you really want to spend it buying dirt? Really? Hopefully, you own dozens of actual structures first. Real doors/units: houses, condos, townhouses etc…

These STRUCTURES are far better investments and allow you to take advantage of the many benefits of real estate.

Leverage: You can put 20-25% down to pay for an investment property. You don’t need to pay 100% cash.

Enormous tax Savings: Ever heard of depreciation, bonus depreciation, cost segregation? Consult a tax professional but the punch line is that these aforementioned tax saving strategies aren’t possible with raw land.

home under constrction

The Steps to Buying Land

Let’s say that despite everything we just noted, you still want to buy land. Maybe it’s an empty lot next to your existing home in a great neighborhood. Maybe you have the time, patience, and money.

Ok, here’s a short version of what’s involved:

  • Find the Land: Landwatch, Zillow, online searches driving around etc…
  • Buy the land: Probably won’t involve a realtor, nor involve a bank at first. Go directly to the seller and either have the cash for it or see if you can work out a seller financed deal with the owner.
  • Analysis: Soil analysis, grading, zoning analysis, water, electric etc…Basically, can you even build a structure on this land? Is it connected to water, electric?
  • Construction: You have to deal with the city or local county to obtain permits, hire an architect to draw plans, hire a general contractor to obtain even more permits etc…

If you’re lucky this entire process from start to finish will take 1-2 years. But probably longer. Ask yourself is it worth it?

Are you building your forever home? Do you want to live off the grid? Do you already own a bunch of property and need something unique? The answer for most people is absolutely not.

You probably could’ve bought several properties and dealt with far less of a headache over that timeframe if you had all this money.

For some, again, carry on. Buy the land, get a construction loan, and deal with all of the headache because you feel it’s worth it for your forever home.

Final Words

If you made it this far, we’ll offer a tip that may make life a bit easier for you.

Many people just want a bunch of land for their own personal enjoyment but don’t have the cash for it. The key is to find a structure that comes with a lot of land. If there is a structure on the land, even if it’s a fixer upper, you will likely be able to get a loan from the bank.