How to Invest in Raw Land

Any investment requires careful analysis of the purchase, and raw land is no exception. Many investors feel raw land is one of the safer ways to increase financial holdings, but all advise that it is important to know what you are doing before taking the final step and committing monetary funds.

Instructions

Difficulty: Challenging

Things You’ll Need:

• Money for original investment

1. Decide the reason for the raw land investment. This will guide the kind of land, location and price. For instance, you may be looking to invest with the intention of building residential or commercial structures one day. Or, you may want only to hold the investment for a time then sell at a profit.
2. Get the pertinent information. You need to look at the zoning for the land to make sure your development idea will work with city plans, or know what kind of value it might have when you sell to a future developer. You also need to make sure city services are planned or available, such as sewer, electricity, roads and other necessities if the land is ever to be put to use for people.
3. Work with a real estate agent. Do not choose the first name you come to or even the one who sold you the house you live in. Buying and selling land is a real estate specialty, and you want someone who knows the future development for the area, has perhaps invested in land of his or her own, and who talks to officials in the area as much as clients.
4. Find raw land from other sources. Your agent will have market listings and may be aware of unlisted raw land for sale, but there other ways to find potential investments. You can talk to farmers, watch for tax sales and foreclosures, read the subdivision notices, research state and county government websites and generally immerse yourself in who is doing what and where.
5. Examine the rate of growth in the area. The speed with which an area is getting developed will increase the speed with which your investment appreciates, if the development appears to be longer term, decide if you want to hold on to the land for that long.
6. Assemble a good down payment. Financing from banks on raw land can be trickier to arrange than for developed land. You may need to have as much as 30 percent in hand and finance the rest, or have good research to show the lender that the investment is secure.

Tips & Warnings

• Check the quality of soil. If the idea is to sell the land for future development, the soil has to be the right kind to hold the foundation or building slab.
• Get some history on the land. If it was once used for dumping, for instance, there could be issues with soil contamination. Tests on the soil and groundwater are fairly simple to arrange prior to closing on the sale. Cleanup after the sale of contaminated soil can be very expensive.
• In some areas, a perc test (or percolation test) is needed before land is approved for any kind of development. A perc test determines if the land has the right qualities for septic installation and is nearly always a condition of final sale. If you buy land that does not pass the perc test, have a good idea of other uses for it that will bring a lucrative return.
• Your investment may need to sit in the raw land for quite some time. Be realistic about your need for the money you are investing and the length of time it will be tied up.
• Fact finding prior to closing the sale will help avoid big problems later. You want to work with your lawyer and real estate agent on checking for easements, liens and any other past history than can affect future resale.