Investing in land – working strategies for investing money in land plots
Investing in real estate is a type of investment aimed at a long–term perspective, therefore, people who know how to wait are more often interested. However, real estate is not only commercial and residential premises, but also land. Investing in land plots provides various options and strategies for making a profit. And the steady growth dynamics, for example, unlike securities, allows you to diversify the investment portfolio with conservative sources of profit.
The relevance of investing in land and market analysis
By analogy, investing in commercial or residential construction, investing in land plots can bring income from sale or lease. At the moment, there is some stagnation in this area: rental prices have fallen, and the demand for real estate has become less. Often this is due to various external factors, but the relevance of this investment option is not lost.
In this regard, choosing such a way of investing funds for yourself, it is advisable to analyze the real estate market as a whole in order to focus on the most profitable strategy. For example, against the background of a general recession, the demand for specific plots of land, in particular, suitable for construction, may grow. By purchasing them, an investor can profitably resell them or build capital objects on them, which are easy to sell or lease.
Thus, the prospects for investing in land are functionally broader than the prospects for investing only in construction or rent.
Advantages and disadvantages of investments in land plots
A distinctive feature of this method of investment is the need to take into account the purpose of the acquired plot and compare it with the final goal. There are 7 categories of land, but not every one of them is profitable for investment. Usually private investors allocate two: agricultural land and land settlements.
It is important to take into account the purpose of the site, since not everyone is suitable for a specific purpose. For example, residential facilities cannot be built on land allocated for gardening, while within the boundaries of the SNT plots it is now allowed not only to be built, but also to issue a residence permit. Since it is extremely difficult to change the purpose of the land, it is important to choose a plot for investing money deliberately.
Such a criterion as location is also of great importance. If you are buying land, it is important that it is attractive to a potential buyer or tenant. For example, a plot located in an area remote from a large settlement and highways is not expensive to sell.
Among the advantages of investing in land , the following can be distinguished:
- a relatively large set of strategies that can bring considerable income. Here it is worth noting an option that provides for the construction of the purchased land, sometimes generating income 3-4 times higher than the original cost.
- accessibility due to the relative cheapness of investment instruments;
- investing in land is a good way to protect investments from inflation, as well as to preserve and increase capital.
The disadvantages of this kind of investment include:
- the unsuitability of land for investment in the short term, especially against the background of declining demand and real estate prices. The investor will have to wait for the right moment to realize his opportunities.
- high competition due to the attractiveness of the investment instrument;
- consequences in the form of the obligation to pay taxes and expenses related to maintenance;
- the probability of obstacles associated with restrictions on the use of land.
How to choose a promising plot of land for investment
The first thing you need to pay attention to is the category. It is not a fact that after the purchase, the land can be adjusted to the purpose of use. The second point concerns the assessment of the preliminary profitability of the object. And that’s what you need to focus on when analyzing:
- location of the storage facility (land within the city limits is considered more liquid);
- the state of the boundaries of the site (preferably objects that have the correct shape and whose boundaries are defined);
- soil quality;
- availability of infrastructure and connected communications;
- possibility of building.
9 strategies for investing in a land plot
Depending on the ultimate goal and the expected profit, experts recommend using the following strategies for investing in land:
- Acquisition of LPH land with subsequent land surveying on separate plots for residential housing. The larger the initial size of the land, the more individual plots can be sold.
- Purchase of a plot for a peasant farm with subsequent transfer to residential housing and land surveying on separate plots. A more expensive and less cost-effective method that requires the registration of a farm.
- Acquisition of land intended for farming in order to create a DNT. This option involves the cost of surveying and re-registration of land, and the downside is a long search for buyers.
- Investing in the purchase of one large plot for residential housing with subsequent division into small ones. At the same time, the plots can be sold both empty and with objects previously erected on them.
- Obtaining a plot of agricultural land with the transfer to residential housing, surveying on separate plots and the construction of a cottage settlement.
- Participation in an auction in order to obtain a summer cottage and resell it. An economical way to increase capital through construction or in the long term, when the cost of land grows.
- Participation in the program of integrated land development. After signing a contract with the municipality, the investor will be able to build residential or commercial facilities that are easy to sell or lease.
- Organization of agricultural tourism. The essence of the strategy boils down to drawing up a competent business plan, obtaining a free plot and building a tourist facility, for example, an industrial settlement, a farm or a livestock farm.
- Buying cheap land and waiting for it to rise in price. As a rule, the sites to which roads and communications are not connected are much cheaper, and with the introduction of roads and communications, they significantly increase in price. You can make good money on the difference in cost.
Despite the fact that investing in real estate is considered the most reliable way to preserve and increase capital, a potential investor should take into account the following risks:
- financial issues related to changes in the real estate market;
- legal, carrying hidden threats, as there are a lot of scammers in this area;
- socio-political issues that arise as the government or legislation changes;
- natural factors affecting supply and demand;
- price related to market analysis (at best, the investor will repel investments, at worst, he will suffer losses);
- informational, suggesting factors related to advertising or trade secrets.
How to reduce risks when investing in land
Like any other type of investment, investing in land involves a lot of risks. Given the specificity of this kind of investment, in order to reduce possible risks, it is necessary to pay attention to the following:
- is the object legally clean;
- what is allowed and what is prohibited by the category of a particular site;
- does the object have geodetic disadvantages (it is desirable to conduct exploration);
- availability (absence) of communications and transport infrastructure;
- is everything in order with the cadastral boundaries of the site;
- whether the parameters of the memory are suitable for the purpose of use.
In summing up the results
Land as an investment is one of the low–risk options for investing money. With a successful choice of strategy, the amount of initial investments can be increased many times, and this is not counting the possibility of saving capital. Of course, there are enough risks, but they are all controlled thanks to the supervisory activities of the state and clear regulation by legislation.
In conclusion, we add that this method of investing funds is unlikely to bring superprofits, but with a competent approach it can become a stable source of income.
Published: 1 May, 2022