Thinking about investing in land? Common wisdom has dictated that it is safer than investing in real-estate. There is less hassle – you don’t have to undergo the rigours of a property landlord, with dodgy tenants and massive maintenance bills, for starters. But while land investment is considered a safer proposition, there are a few things you should take into account before handing over your hard-earned cash.
Consider the following.
- What you see isn’t always what you get
You may have seen a piece of undeveloped land and decided that it would make a fabulous investment. Whether you plan to leave it alone or do something with it, you shouldn’t go at face value. You need to have the land inspected at the outset, and get reports on soil quality, drainage, and topography. You need to check on potential zoning issues that could scupper any plans you might have. And you need to ensure you are buying land that is safe, especially when planning to build on it later. You don’t want to purchase something in a flood zone, for example. Thoroughly examine the land yourself – don’t rely on Google Maps – and call in the experts to check the viability.
- There are additional expenses
If you’re choosing land over real-estate to negate the added expenses after purchase, think again. There is the general upkeep to consider for starters. Unless you allow a local farmer access to your land with grazing animals, you are going to need somebody to look after the grass. You may also need to hire a woodland management service if you have trees growing on your property, as well as a maintenance team if you have fencing around your perimeter. And then, of course, there are taxes. Even while your land is sitting idly by doing nothing in particular, you are still liable for payments made to the IRS. Tax deductions are still possible though, so you need to remember them when filing your return.
- You may run at a loss
If you don’t intend to do anything with the land for awhile, you are going to run at a loss. The land will be redundant, and if there is maintenance work to be done, you aren’t going to see a return on your investment. If you are buying to sell, you also need to know that the land property market fluctuates as much as real-estate. Still, there are ways to add value. Improving the land’s aesthetics is a start, investing in nature to increase the net worth. Then, as with property, it’s important to remove anything that will be off-putting to a potential buyer, such as noxious weeds and other patches of unkempt land. It’s also important to fix areas of damage, such as places of erosion. Developing on the land is another way to add value, although this will take more of your financial resources, so you need to think carefully. Adding a pond or a parkland may be considered a good investment if you later plan to sell, though you may still decide to do absolutely nothing to allow the buyer to make his/her own decision on the land. Of course, if you aren’t planning to sell for a long time, you should put the land to use to secure you get something back. Renting it out to a local farmer is one idea, or you could use the land as camping ground. Whatever the case, don’t buy land until you have a clear purpose in mind, and ensure you have savings to see you through a period of loss.
- There are legal implications
As with real estate, you do need insurance. You are at risk of a lawsuit if someone injures themselves on your land. While you can reduce liability by adding a ‘No Trespassing’ sign on your property, it is still in your best interest to remove the risks of any accident or fatalities. This means repairing any damage on the land and removing anything that could cause somebody harm. Having the land inspected by a professional is also a good idea, especially if you are unsure of potential risks and dangers.
- There may be restrictions placed on you
You may have grand ideas about how to use your land, but you need to be aware of conservation easements. These will prevent you from doing anything that could harm the wildlife and environment, which is great on the one hand – you don’t want to destroy earth’s resources – but you may be forced to rethink your plans. Check with the seller before buying, as you may face legal problems if you do anything that breaches the restrictions put in place.
Thought buying land was an easy proposition? Think again! Still, as with any investment, you will benefit by doing your research beforehand, and ensuring you are in a solid financial position before going ahead with your plans.