Good investors know that building a diversified investment portfolio is an excellent way to grow their net worth. Despite this knowledge, many investors still undervalue the potential of land investments.
The reality is that land can be an excellent investment and can provide a passive income through lease options, build greater value through development, or generate a lump sum of money through property flipping. However, no investment, including land, comes without risks.
Land investors must be careful about what properties they purchase. For example, buying land that can't pass a perc test may spell disaster. In fact, unless the land can tap into the local municipal sewer system, it may be impossible to build anything on this land or sell it for a profit.
Zoning is another obstacle to land investment. Say an investor buys a parcel of land with the purpose of selling it to a commercial developer later down the road. If the area's zoning regulations are designated for residential only, no commercial developer is likely to touch it. The value of the land may significantly decrease, and the investor may end up selling it at a loss.
Investors must also consider the ongoing maintenance of the land. Unlike some investment types, such as gold or silver, land needs to be maintained. Depending on the location of the land, maintenance may include lawn care and snow removal as well as property taxes and insurance. These extra costs must be factored into any land investment when determining the asset's overall value.
Land investments are still a great addition to any investor's portfolio despite these extra concerns. Today's investors aren't even limited to local land purchases. Instead, several great online platforms allow investors to purchase property anywhere in the world.
Of course, property investment isn't quite as easy as it looks. In fact, real estate transactions can be pretty complex. Many investors work with real estate and property tax professionals to ensure they choose the right property and have no problems with the transactions.
Investors who want to diversify their portfolios through land acquisition but aren't ready to buy land can consider investing in land exchange-traded funds or land real estate investment trusts. These alternatives allow investors to add land acquisition to their portfolios without the risk of taking out a loan or the stress of maintaining the property.