Posted onJuly 31/2014
Have you ever wished you could create a time machine, and travel back into the 70’s or early 80’s and start buying up fields and wooded areas where strip malls and subdivisions stand today? Who knew that kind of explosive growth the real estate industry would go through?
Imagine owning even a few of those parcels of raw land, just sitting there waiting for someone to build on. Of course, there is no time machine and we may have missed that boat, but what about raw land today? Is it possible to buy it and just let it sit there, waiting for a developer to come along and make you rich?
Not the 70’s or 80’s
Naturally, the first thing you must keep in mind about buying raw land today, is that it is no longer the 70’s or 80’s. Land costs a lot more, and much of it has already been developed. There will always be developers looking to build new subdivisions and shopping malls, but buying raw land specifically to sell it and make a big profit may not be the best investment strategy.
While there is nothing saying you can’t buy parcels of land and wait for developers to buy them from you, most raw land purchases don’t generate income and actually have negative cash flow due to continuing property taxes.
Also, there is no depreciation allowed when it comes to raw land, so you won’t realize any income tax breaks. Not to mention the environmental testing and regulations that will have to take place if a developer ever does take an interest. Sometimes, this kind of land just sits there for years before it is sold or in certain cases, it is never sold.
A Risky Investment
For banks and other lenders, undeveloped land is one of the riskiest types of investments out there. Not that there is anything wrong with owning land, but if your goal is to see a return on your investment, the uncertainty makes it a risky proposition.
So, yes you can buy raw land and in most cases you can let it sit. However, if you really want to “invest” your money, it may be better to find investments with a higher return percentage. A reputable investment counselor will likely try to guide you away from buying raw land, unless there are some circumstances that make it look particularly attractive and potentially lucrative.