Is my friend investing poorly?

Question

Hi guys, I'm new here, and I thought I'd ask your opinion

A friend of mine recently got out of the army, and began buying underpriced properties for cash.  Now she owns a couple empty lots, that she plans on holding for a few years, and selling each to a buyer who wish to build a home on.  She is brand new to real estate investing, and I feel like the real estate agents took her for a ride

1.  Wouldn't investing in a property that would provide rental income be a better solution than just buying a piece of land and hopefully selling it for more in the future?

2.  Is buying properties with cash bad idea?

thanks much

Kel S · Answer

Just my humble opinion and I'm new to this game and no expert.

Michael Rossi · Answer

1. Yes, simply buying a piece of land and hoping it will go up is not a good investment.  All the while she holds it, she'll be paying taxes, mowing it, and keeping it cleaned up (trash removed, etc).  In addition, there is the opportunity cost of the money she has invested.  She could probably get a better return by simply putting that money in the bank.

On the other hand, if she has some inside information that the property will be in great demand in the future (like Walmart will desperately want that property in a few years), then she may be a genius!

2. Owning an income producing property free and clear is a wonderful thing.  Unfortunately, vacant land doesn't produce anything except bills.

Mike

Ned Carey · Answer

Question 1) 
Some people invest for income some invest for long term gains, some for a combination. What is correct for you or you friend depends on your personal situation. Land can be quite lucrative but you should know what you are doing. Simply buying land hoping it will go up without a market analysis and understanding the opportunity costs of holding is not a good strategy.

2) Again it depends on your philosophy and strategy. You can absolutely increase your returns by leveraging  through mortgages. What is rarely talked about is the risk of borrowing and leverage. We are seeing the negative results of that risk now.

As to whether your friend got a good deal, it's more important to know the details of the deal. Every deal is different and you need to know the numbers.

Josh Green · Answer

1.) yes, if you are wanting cashflow.

2.) depends. need to know the numbers as ned said...