Land banking can be an ideal investment strategy, but if you don’t know what you’re doing, you might learn Land Investment 101 the hard way. Here are a few simple, ground-level tips to make sure your investment is a good one.
1. Understand taxes.
It’s a good idea to learn as much as you can about the tax systems in your purchasing region. Figure out whether you can afford the yearly property taxes. Some properties have prohibitively high tax rates, while others, especially land banking investments, are more reasonable. Expect different tax rates for different properties: a 10-acre parcel in a 15-year development path will have a more manageable total property tax burden than a 10-acre parcel at the heart of a metropolis. You may need to narrow down your options depending on the taxes you’re willing and able to pay each year.
Some states’ property tax laws tax land being used for agricultural purposes at a much lower rate. As you wait for your investment to appreciate, see if you can qualify for this reduction by growing something on your land.
2. Cash can help.
Today, it is difficult to obtain financing, especially for land. This is because raw land doesn’t produce sufficient cash flow to satisfy a mortgage payment. When investing, it’s best to come to the table with some cash or transferable funding on hand.
3. Location, location, location.
This is the theme of our site and our business, but it never hurts to repeat it. The location of your land parcel will determine your investment success. Location also determines the speed of turnover. A (usually higher-priced) parcel closer to the urban center or source of development will appreciate sooner, and you’ll be able to sell it in a shorter time. A parcel further down the path of development is a longer-term investment. Consider location and all the factors associated with it when you purchase land.
4. There is no instant gratification.
All good investments take time, so be patient: wealth doesn’t happen overnight. In today’s world of instant responses and lightning-fast connections, don’t panic when the market has a few lows, and don’t get too excited over a high. Be willing to wait it out; a long-term land investment will yield the greatest rewards.
5. Protect the land.
After you purchase your land, it’s important to keep liability low. Though land requires less maintenance than other real estate investments, it needs some care. Here’s how:
• Prevent people from thinking your land is a vacant lot. Put up “private property,” “no hunting,” and “no trespassing” signs.
• You will probably live a fair distance away from your land. Get an advocate to watch the property, checking in on it once in a while, and befriend the local authorities. A small manager’s fee to make sure that someone walks by the property once in a while can save you a lot of grief later.
• Mow and maintain the land, especially if there are wetlands nearby, to prevent wetland encroachment and maintain curb appeal.
If you follow these simple guidelines, you’ll have a more pleasant and rewarding land investment experience.