Land is a finite resource, and over time most land properties tend to appreciate. Parcels of land located in attractive areas, in or near expanding development can be a great investment that will provide future returns. Land doesn’t often get the attention of other forms of real estate making it less competitive and sometimes a great place to start for new investors.
However, before you start investing in land, you should expand your knowledge on what to look for as an investor. The first step to investing in land is to familiarize yourself with market trends and to study the market where you plan to invest. Understanding market trends can provide you with profitable opportunities, and help you time your purchase right.
If you want to be a successful land investor, here’s a list of market trends that you need to know.
Suburbs as Key Markets
Yes, many land investors are now poised to invest in suburban lands because of the promise it holds in the near future. As bigger cities continue to grow in population, new construction, remodels and reconstruction help fuel the local real estate economy. As prices rise in those areas it begins to create a price increase in the surrounding areas as people look for more affordable housing close by.
Also, many people in the cities choose to make the move into suburban areas as they want less traffic, affordable housing, and a safer place to raise their families. Taking all these factors into consideration, investing in suburban parcels of land can be a profitable investment to well positioned land investor.
Increased Confidence from Lending Institutions
Lending institutions have a significant influence on the overall real estate market. For instance, the past housing crash was in part caused by loose underwriting practices of banks and lending institutions. After the market collapse, banks’ confidence in providing loans to developers, investors, and homebuyers had dwindled, making it harder to finance real estate sales.
However, since the market is now improving, lending institutions are now beginning to ease their lending options and loan requirements. For instance, they’re now becoming more confident about acquisition and development (A&D) loans, which is significantly favorable to land investors and developers.
Also, some lenders no longer veto borrowers who have a history of short sales and foreclosures in their credit report. Lending institutions are now willing to provide loans to land investors with a subprime past.
However, there’s another trend that’s not so desirable on the part of borrowers: the increase of mortgage interest rates. Of course, this drawback can affect the cost that investors have to pay for their investments, as well as their financial analysis.
Land for Building Rental Homes
The housing market crash has caused consumers to be more cautious about the advantages of homeownership. In light of that, there’s now a growing interest in renting.
Perhaps you’re thinking of apartments when renting comes into the discussion. Since the demand for apartments is rising, investing in land that can be used for building multifamily housing can be a profitable endeavor.
There’s also another opportunity that real estate investors are taking advantage of, and that’s building single-family residential houses. In fact, some land investors are turning vacant lots into rental properties since they see excellent investment returns on single family rental properties.
The key to taking advantage of these opportunities is knowing your market well enough to recognize trends in new development or changes to the local economy that will increase the value of land in your target market. There are a shortage of income producing properties for sale in many desirable markets making it a better investment to build a new property than try and compete for the limited inventory that is on the market.
Real estate development came to a near standstill after the housing market crash. But now that the market is growing again, the demand for developed lots that are build ready is on the rise.
New home builders are starting to buy some of the vacant land properties that were left undeveloped after the real estate downturn. Additionally, multi-family housing investors are finding there to be a shortage of available investment properties on the market, and the pricing on what’s available is making it hard to acquire a decent return on investment.
Many investors are now finding that they can get a better return on new construction, prompting them to search for suitable land that is zoned for multi-family or commercial use. Land that fits their criteria will go up in value in areas where this trend is taking place.
Recognizing where this trend is taking place and investing in developed land in these areas could put you in a prime position to make a solid land investment that could yield you a significant profit when it comes time to sell.
Growing Interest in Raw Land
Aside from developed or residential lots, there’s also a growing interest in raw land as a long-term investment. This type of property can be affordable to purchase and a great investment due to the lack of maintenance and low cost to own. However, you need be patience as it can take decade for land to appreciate.
Since housing developers are looking for vacant lots to build new homes, this trend makes an excellent opportunity for land investors. Of course, you can opt to allow a raw land to appreciate in value, develop it further, or put it up for sale to home developers. That’s how versatile a raw land can be as an investment.
Whether you are just starting out or are a seasoned investor, knowing your market well and being able to spot trends is the key to a profitable investment. The first step to a successful land investment is conducting as much research as possible as you begin your search. A deep dive into sales data, local development, and past trends can help you time your next land purchase and ensure that it is a profitable investment.