I came across a great article on investing in raw land. I thought that you might be interested in the tips below. Flipping a few pieces of raw land can be a great way to generate some seed money to purchase an asset later on.
It has been said that real estate, particularly land, is a solid investment because the supply is limited — nobody is producing any more. Although the growth of population seems to guarantee that land prices will increase, making it a good investment, you must be careful and follow a method for your land purchases. Land may also make a good Individual Retirement Account investment.
Land for Houses
Vacant property that you purchase with the intention of developing by building houses or commercial property is one way to invest in raw land. You can purchase a house lot in an existing subdivision, with the intention of holding on to it and selling it later at a profit. A real estate broker can assist you in finding these types of properties, which will often sell at a premium. You can also focus on larger tracts of land and work to develop these properties for residential or commercial use on your own. By completing site plans and other infrastructure development, you can increase the value in the property to a potential investor.
Farmland is another type of raw land that can produce good returns on your investment. According to Jeff Notaro, CEO of Black Sea Agriculture, a farmland-investing limited partnership, U.S. farmland prices increased by 270 percent from 2002 through 2011. Worldwide population growth and increased demand for food are expected to continue to drive farmland investment growth. Although you can purchase a working farm to invest in raw farmland, you can also purchase the raw land in large tracts and rent it to farmers to grow food on. In addition, you can purchase stocks in companies that invest in raw farmland if you do not want the hands-on management that goes with the actual ownership of the property.
Financing your Purchase
Financing a raw land purchase for investment is different than financing a home purchase. The bank has more risk with this type of loan, as the owner is not using the raw land and will be more likely to walk away from the property in case of financial problems. Many banks will not lend money to purchase raw land. The ones that do often require much higher down payments on raw land loans, higher interest rates and shorter terms for the loans. A down payment as high as 50 percent can be common, with the bank requiring a decent amount of cash reserves as well.