Is land a Good Investment?

Question

Hello BP, I recently came into possession of a list of hundreds of lots that are FSBO in the upstate of SC and was wondering, "Are lots a good investment?". I wanted to hear fellow BP member's opinions on investing in land and whether or not I should do the same. Thanks so much, everyone. Have a great day!

Pat L. · Answer

I was bored so picked up 3.8 acres at a tax lien auction for $22k. My wife was annoyed complaining that it was not a money maker like all the properties we own plus the taxes were an annoying $900/yr. BUT it was the perfect building lot, flat, no low spots so virtually no expensive site prep required. House on one side was built for $385k & the school district was in big demand. The other neighbor approached us after we bought it & offered to maintain the grass etc as long as he could use it to access his back acres in his tractor, deal!!

18 months later we sold it for $60k & the couple built a 5 bed/4.5 bath $425k home on it. My wife then says maybe we should have kept it longer, because I think we sold it too cheap.

Ya can't win.

But if it's viable build site & in demand area its a no brainer to buy & maybe develop it.

18 months later we sold it for $60k & the couple built a 5 bed/4.5 bath $425k home on it. My wife then says maybe we should have kept it longer, because I think we sold it too cheap.

Ya can't win.

But if it's viable build site & in demand area its a no brainer to buy & maybe develop it.

Seth Williams · Answer

@Rowen Burney - it depends on how low of a price you can buy a vacant lot for (as compared with its actual market value). If you're able to pay a very, very, very low price when you buy it (say, 10% - 30% of what most normal buyers would pay in this market)... then yeah, it'll probably be a great investment - because you can turn around and list it for 50% - 70% of market value and the average retail land buyer would still be getting a great deal AND you'd also make a nice profit along the way.

If you can buy a vacant lot at a huge discount like this, then the model works pretty well. However, if you pay everyone's full asking price (whatever they think the "fair market value" is), then you'll probably have a much harder time making a profit. Buying at a super-cheap price is what gives you a big competitive edge in the land business, and it's actually not difficult to find deals like this if you know where to look for motivated sellers (hint: send direct mail to a highly-targeted list of landowners).

I'm not sure how "motivated" these FSBO property owners are that you're dealing with, but if they aren't willing to sell at a super low price, don't sweat it. There are plenty of other ways to find them elsewhere - don't feel like these property listings are your only options for buying land in your market.

Bryan Richardson · Answer

@Rowen Burney

As long as you have a plan on what to do with it. I wouldn't buy it just to have it though.

Michael S. · Answer

Unless you have an immediate use for the land, it can often be a small alligator and tie up investment funds.

By "alligator" I'm referring to the negative cashflow vacant land generates with expenses such as property tax and weed abatement issues.  Additionally consider the funds you will have invested in the land and opportunities/alternative investments you have to forego with finite investment capital.  Also consider it is usually easier to refinance a house and pull out your original investment versus land financing.

When I've looked at the land vs rental house equation I've always choose rental house.  Both should appreciate overtime due to the devaluation of the dollar but the rental house provides both appreciation and monthly cashflow. Factoring in the cashflow, the rental house is usually the winner in the equation.

All that said, there are still a few land deals I wish I had taken because the land was so mispriced/undervalued to the surrounding area.

Is land a Good Investment?

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