Is investing in undeveloped land a good or bad idea?

Question

I'm a young investor, in my mid 20's. I'm looking at buying real estate in Oregon, which has one of the fastest population growth rates in the US, and great future potential.

I've been scouring the markets, and most of the existing houses are very expensive, and do not cashflow. However, there is an abundance of cheap land. One example I found was 80 acres of beautiful land with a cabin for $225,000.

I'm thinking that, if Oregon continues to grow at its current pace, that land may eventually be worth a lot more than I paid for it. At 3.5k/ acre, it could be worth 100k/ acre or more if it becomes a developed area.

However, this could take decades and the whole time I'd be paying property taxes on the land, without a monthly return.

I think this is a very cool opportunity, but I want to know if it makes financial sense? Have you invested in land and made money off of it? Have you gotten burned? Let me know.

Derrick F. · Answer

Definitely agreeing with Patricia. Maybe building a relationship with a small developer in that area with the right connections for an A-Z project might help steer that goal.

Patricia Steiner · Answer

Investing in land is not as inexpensive as it seems. First, most financial institutions will only finance 50% LTV; the terms will not be as generous as a regular mortgage. Also, you'll need to know if the property is "buildable" - which requires a soil test and more. You'll want to know the zoning and future use assign to the land by the property appraiser's office as well as set-back requirements. Does the municipality provide utilities? Will you be expected to pay impact fees? There's just a lot to it. And, as you pointed out, it could be a long-time financial carry with no return.

My family has invested in "dirt" for decades but always with an exit plan from the start. We generally formed an investment group with our usual cohorts and had all the due diligence and a business plan completed long before closing. You don't want to buy dirt to wind-up paying/owning dirt forever.

As a new investor, I recommend being patient and finding a property that will provide a return so you can cover your costs and find the next great one. Find yourself an investor-focused realtor to help you in the search since, as a buyer, you'll pay no commissions.

Keep the faith. Be patient. Extend your market area. Learn. And, don't buy what you don't understand or know.

Hope this helps...

Is investing in undeveloped land a good or bad idea?

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