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Reason Why You Should Be Raw Land Investing

Reason Why You Should Be Raw Land Investing

Jan 06, 2023 Guides

What Is Raw Land?

Raw land refers to land that has not yet been developed or improved. It may be an undeveloped parcel of land in a rural area, or it may be land within a city that has not yet been built upon. Raw land can be found in a variety of locations and may have a variety of natural features, such as forests, mountains, or rivers. It is generally considered a riskier investment than land that has already been developed, as it is often more difficult to determine the value of raw land and there may be additional costs involved in preparing the land for development. However, raw land can also be a potentially lucrative investment if it is located in an area that is expected to experience growth or if it has features that make it attractive for development.

Reason Why You Should Be Raw Land Investing

Raw land investing involves purchasing land that has not yet been developed or improved. It can be a riskier investment than purchasing land that has already been developed, as it is often more difficult to determine the value of raw land and there may be additional costs involved in preparing the land for development. However, it can also be a potentially lucrative investment if the land is located in an area that is expected to experience growth or if it has features that make it attractive for development. If you are considering investing in raw land, it is important to do your due diligence and thoroughly research the property and the surrounding area before making a purchase.

 

Here are a few things to consider when evaluating a raw land investment:

  1. Location: Raw land in a desirable location, such as a city that is experiencing population growth or a region that is popular with tourists, may be more valuable and easier to sell in the future. Consider the proximity of the land to schools, hospitals, and other amenities, as well as the surrounding natural features.

  2. Zoning: Check the zoning laws in the area where the land is located to determine if it can be developed in the way that you envision. For example, if you want to build a residential development on the land, it will need to be zoned for residential use.

  3. Access: Is the land easily accessible by road, or will you need to build a road to reach it? This can increase the cost of developing the land.

  4. Utilities: Is the land serviced by electricity, water, and other utilities, or will you need to bring these services to the site at additional cost?

  5. Environmental concerns: Check for any environmental hazards or issues that could affect the value or usability of the land. This could include things like wetlands, floodplains, or endangered species.

  6. Financing: Consider the cost of financing the purchase of raw land and any necessary improvements, as well as the time frame for recouping your investment.

It can be helpful to work with a real estate agent or land specialist who has experience with raw land investments, as they can provide valuable insight and guidance throughout the process.

 

Does Land Appreciate?

Land can appreciate, or increase in value, over time for a variety of reasons. Some of the factors that can contribute to the appreciation of land include:

  1. Location: Land located in an area that is experiencing population growth or economic development may appreciate in value due to increased demand.

  2. Natural resources: Land that has valuable natural resources, such as timber or minerals, may appreciate in value as demand for these resources increases.

  3. Infrastructure: Land that is located near infrastructure such as highways, airports, and public transportation may appreciate in value due to increased accessibility.

  4. Land use changes: Changes in land use regulations or zoning laws can also affect the value of land. For example, if land that was previously zoned for agricultural use is rezoned for residential or commercial use, the value of the land may increase.

It is important to note that land appreciation is not guaranteed, and the value of land can also decrease in certain circumstances. It is important to do your due diligence and carefully research the factors that may affect the value of a piece of land before making an investment.

How Many Years Can You Finance Land?

The amount of time a traditional lender will allow borrowers to finance a land investment will vary. There are several factors that will determine the loan duration one may expect to receive for raw land, not the least of which includes the plot’s location and its use. For example, lenders are more willing to extend their loan durations for plots of land that exhibit a degree of intrinsic value. If for nothing else, a promising plot of land represents a less-risky investment on the bank’s behalf. That said, those investing in land shouldn’t expect considerably long loan terms. Buying raw land typically coincides with short, restrictive payment terms. While some raw land investors can increase the length of their loan, most terms have a limit of about 10 years or less.

Types Of Land Investments

There are several different types of land investments, including:

  1. Agricultural land: Land used for farming, ranching, or other agricultural purposes.

  2. Residential land: Land used for building homes or other residential developments.

  3. Commercial land: Land used for building businesses or other commercial developments, such as office buildings, shops, or factories.

  4. Industrial land: Land used for manufacturing or other industrial purposes.

  5. Recreational land: Land used for recreational activities, such as camping, hunting, or fishing.

  6. Raw land: Land that has not yet been developed or improved.

  7. Development land: Land that has been approved for development but has not yet been built upon.

  8. Conservation land: Land that has been set aside for the preservation of natural resources or the environment.

  9. Timberland: Land that is used for growing trees for timber production.

  10. Mining land: Land that is used for extracting minerals or other natural resources.

Each type of land investment has its own set of risks and potential returns, and it is important to carefully consider your investment goals and risk tolerance when choosing which type of land to invest in.

 

Raw land investing can offer several potential benefits, including:

  1. Long-term appreciation: Raw land may appreciate in value over time due to factors such as population growth, economic development, or changes in land use regulations.

  2. Diversification: Raw land can be a way to diversify your investment portfolio and reduce your overall risk.

  3. Potential for development: If you are able to successfully develop the raw land, you may be able to earn a significant return on your investment.

  4. Passive income: If you are able to lease the raw land to another party, you may be able to generate passive income from the property.

  5. Opportunity for value-add: If you are able to make improvements to the raw land, such as by adding infrastructure or utilities, you may be able to increase the value of the property.

However, it is important to note that raw land investing also carries certain risks, including the possibility of low returns or even loss of the initial investment if the land does not appreciate in value or if the costs of developing the land exceed the potential returns. It is important to carefully evaluate the potential benefits and risks of raw land investing before making a decision.

There are several issues to consider when evaluating a raw land investment, including:

  1. Location: Is the land located in an area that is expected to experience population growth or economic development? Is it accessible and close to amenities and infrastructure?

  2. Zoning: What are the current zoning laws in the area where the land is located, and do they allow for the type of development you envision?

  3. Access: Is the land easily accessible by road, or will you need to build a road to reach it? This can increase the cost of developing the land.

  4. Utilities: Is the land serviced by electricity, water, and other utilities, or will you need to bring these services to the site at additional cost?

  5. Environmental concerns: Are there any environmental hazards or issues that could affect the value or usability of the land, such as wetlands, floodplains, or endangered species?

  6. Financing: What will be the cost of financing the purchase of the raw land and any necessary improvements, and what will be the time frame for recouping your investment?

  7. Development costs: What will be the cost of preparing the land for development, including any necessary grading, clearing, or infrastructure improvements?

It is important to thoroughly research these issues and carefully consider the potential risks and rewards of raw land investing before making a decision.

Summary

Real estate investing inherently coincides with a certain degree of risk, and raw land investing is no exception. The answer to “is buying land a good investment?” comes down to the work you are able to put in. Those who educate themselves on the topic can gain the confidence needed to begin and the expertise required to succeed. Learn how to finance a raw land investment, research the best type to buy, and determine how to proceed after investing in land. These steps could help you unlock sizable profit margins from an underutilized real estate investing strategy.

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