Buying raw land is one of the riskiest ventures that any real estate investor can make. There are some great profits to be made from purchases that work out, especially if you can predict the direction of growth and expansion, but there is always the chance that the land will sit there for years before it shows any appreciation in value. Is is really worth the gamble?
There are great financial risks involved when purchasing raw land.
Raw land has great potential to appreciate in value, but there is no depreciation for income tax purposes and there are sure to be long periods of ownership where no income is generated. It can take years to see any sign of gains, or interest in the land, and it is all subject to supply and demand, as well as other factors that are out of your control. What if you buy a plot of raw land, assuming it will be attractive to developers in the future, only to find that environmental testing scuppers any plans?
Despite these risks, the chance of great profit drives many investors to continue and take a chance on a cheap plot. Subdivision and the development of large tracts of raw land can provide a safety net of sorts in areas that are a sure thing; however, many investors choose to take a bigger chance through long-term holding.
Long-term holding and Disney:
An alternative approach is to go in for long-term holding – an option that is highly appealing for those that are patient and happy to see how it all plays out. Boiled down to its simplest terms, all you need to do with long-term holding is buy a seeming worthless, out-the-way piece of land and wait for developers to reach it. That land could become very appealing once developers run out of room, and the bigger the company, the bigger the profits. This was certainly the case in the rough swampland of Orlando once Disney moved in. The area suddenly became prime real estate and all those long-term holders were rewarded with big profits as the surrounding area saw a surge in appreciation.
In the end, it can all come down to land speculation. Investors need to have a hunch that an area of raw land will, at some point, be reconsidered as a great location for future development. The land that contains many out-of-town retail parks or fancy residential areas was once barren and useless. You just have to anticipate the direction that developers will take, purchase a cheap plot and wait for the demand to increase its value.
Buying raw land is all about the gamble. Big risks and high-stake bets can lead to some big rewards.
The term speculation shows just how much of a gamble we are taking when we invest in raw land. There are no certainties with either approach and investors have to be prepared for a long wait, especially if developers take a different path and the plot does not appreciate in value to the level you had hoped for. If you can be sure of purchasing land within a clear path of growth and expansion then your chances will improve, but the fate of the investment is out of your hands. All you can do is research your best options, trust in the laws of supply and demand and hope that lady luck is on your side as you roll the dice.