Useful Tips for Investing in Land

The vast majority of the profit in many real estate transactions comes from the land due to appreciation, subdividing efforts, demographic pressure, etc., rather than a profit made during construction or later while managing property.

Investing in land may offer an excellent return on investment due to its high profit margins, and there may be less risk due to a faster turnover compared to building, constructing and then managing the property. If the land is purchased raw and subsequently subdivided, it offers excellent safety since there is usually significant appreciation just as a result of the subdivision process.

There are many factors that affect profits during the development process that add to the risk during the construction phase of the process. This includes dealing with material shortages, cost overruns, subcontractor problems, lenders, building defects, lawsuits and more. When you are in the land development business, you don't deal with construction, lease-up and rental, long sellout periods, or lender difficulties. These risks are greatly reduced.

When you buy land for cash you can take the carry risk out of it and you can weather most downturns. There is often excellent built-in seller financing for land where the seller will carry the financing at terms that are often more affordable and less risky than a land lender.