Tag: Real Estate Investment

Pros and Cons of Investing in Vacant Land: Buying Oceanfront or Golf Community Lots for Investment

Investors who are looking to diversify from stocks and bonds often look to real estate to provide stable long term returns. Some of the potential vehicles for real estate investment are rental properties, both commercial and residential, and vacant land.

Vacant land may be in the form or large tracts of farm land, undeveloped industrial property or single lots for homes. Vacation areas may have unfinished developments, where there is a substantial potential for growth and capital appreciation.

Oceanfront locales and golf communities often divide up large areas for housing development and sell the individual lots to people wishing to build homes. The lots can be used immediately to build vacation or permanent homes, or can be held for capital appreciation.

An Example of Land Investment

Using the example of a oceanfront or Oceanside property, an investor may look at housing developments in a vacation area (such as Hilton Head Island). There are often a number of developments that have yet reached completion, and investors may have the option to buy a lot before the property is built up.

If there are no restrictions on building, the owner can choose to build on the property or hold it with the hope of capital appreciation.

Positives of Owing Investment Land Property

  • Land that has not been built on is likely to be much cheaper than prime vacation area property that already has been improved. It provides an opportunity for those with minimal capital to acquire a piece of desirable location.
  • This provides a lower cost way for people to buy a lot at today’s prices with the intention of building their dream home sometime in the future.
  • In times of capital appreciation, the smaller price allows for a much higher percentage return when sold. Even if there is no increase in the value of the land, the owner still has the option to build on it. If there is significant deflation in prices, the amount at risk is less than a lot with a house.
  • If the land can be bought for a low price, it may be possible to turn around and resell it quickly, that is, flip the property. Flipping works during high growth periods (sometimes called “bubbles”).

Negatives of Land for Investment

  • Unlike commercial or other residential real estate, no rent can be collected on vacant land, since there are no structures. It is possible to collect something if there are easements for power lines or other utilities, but this may compromise the ability to build or sell the land.
  • There are expenses associated with land, primarily taxes, but there may also be costs of maintaining the property (cutting grass or other upkeep). Lots in desirable developments may have owners’ association fees or mandatory country club memberships.
  • If the property cannot be flipped, the owner expecting a quick profit may be stuck with a property they have to sell at a loss, if they can sell it at all. If the property is financed, the investor may be forced to default on the loan and lose the entire amount of his equity.

Buying a lot is a quick way to invest in real estate, but without the income that comes from renting the property is a risky strategy for the novice investor.

Making A Profitable Real Estate Investment

Making A Profitable Real Estate Investment

Investment in real estate appears lucrative, but it needs an in-depth understanding of the realty market. A realtor will always encourage prospective investors to buy the properties that are readily available. But it is important to enter the market at the most opportune time, and buy the right location at the right price. Property investments are large-sized, illiquid in nature, and not easily reversible. Therefore, a judicious decision can payoff hugely, while a wrong decision can set back the investor badly.

Clear Goals for Investment

Before the investment exercise may commence, it is critical to have clear investment goals. It is not the kind of investment where just because there are plenty of homes for sale at low prices, so a home should be bought. A person who does not own a house of his own should ideally aim for a residential property. That serves a dual purpose of investment as well as self-use. Where as, a person who is keen on creating a regular income from real estate, should look at a commercial investment. Commercial properties tend to fetch a high return on investment in terms of rental income. Residential properties tend to appreciate more in capital value terms.

Evaluate the Realty Market Prices

It is important to assess the general economic trends, and study the forecasts of analysts regarding the real estate market prices. This is most important particularly when the property is to be purchased purely for investment purposes. When the property prices at their peak, it may not be the best time to buy for a shrewd investor. Real listings and price patterns should be analyzed to make a decision regarding the best time to enter the market.

Location, location, location

The age-old mantra of “location, location, location” still holds true as ever. Realestate is a fixed investment, in the sense that the location cannot be moved once it is made. The basic infrastructure and facilities, quality of neighborhood, availability of public transport and ease of connectivity are external factors that are not in the control of the property owner. This is equally true for commercial and residential investments. In case of built-up properties, the condition of the property should also be a key consideration while deciding on the investment.

Property Management and Maintenance Costs

Whether it is a commercial or residential property, the quality of the property management and the professionalism of the managing agency must be considered. Another crucial factor that tends to get ignored sometimes is the monthly or annual maintenance charges attached to the property. The charges must be reasonable and this point should be carefully evaluated before signing the deal.

Costs of Financing

Just getting attracted by a house for sale opportunity is not enough reason to make the investment. If the investor is going to raise finance from the market to fund the investment, the costs of financing and the terms and conditions must be evaluated judiciously. Even a good investment that will pay off in the long run may cause a loss. This is especially true if the financing is very expensive. It is also true if the investor is forced to sell the investment prematurely due to financial miscalculation.

Scrutiny of the Property Title

In case of a real commercial, residential or land investment, the property title and ownership must be scrutinized carefully. Preferably, the property documents should be reviewed by an experienced real estate attorney. The title should be absolutely clear, and if any liens are attached to it, everything should be transparent and understood before signing on the dotted line.