Risks and Rewards In Land Investment

One of the primary real estate investments anyone can engage in is to acquire land. Land is limited in supply but has multiple uses. It is the foundation on which other types of real estate investments are built. Many have heard of individuals who bought one or more parcels of land in a developing area that later turned into a mainstream area, thus giving them fantastic returns on their investment.

These stories have motivated countless investors to buy land with the hope of selling it when it has appreciated in value and making significant profit. It is definitely worth it to understand the risks and rewards associated with this type of real estate investment.

The impact of population and urbanisation on land appreciation cannot be over estimated. The built up areas of our cities are constantly expanding. Rural to urban migration is rapidly increasing due to the infrastructural and economic challenges of rural areas, high unemployment rate and the magnetism of opportunities in the city centres.

These trends redefine the existing boundaries and create opportunities in real estate investment. The more the demand for housing, the more the demand for the land on which those houses will be built. The more the city grows and expands, the greater the increase that will be experienced by those living in the areas adjourning urban areas and cities. One cannot exist without the other.

This is one of the fundamental reasons behind land speculation. Land speculators look for strategic areas that are likely to be among the initial beneficiaries from the spillover effect of population growth and urbanisation. They buy land in those areas and hold it in the hope of selling it for a profit.

Land speculators are not interested in property development, agriculture, estate development, letting and leasing or similar value addition aspects of real estate development. If it works out well, they will make significant profit and if it turns out badly, they may end up losing their entire investment.

There is a difference between the informed land speculator and the uninformed.

The uninformed land speculator simply buys a parcel of land without any defined parameters in the hope that it will someday somehow appreciate in value.

On the other hand informed land speculators have specific criteria that they consider before buying a parcel of land. They know that there is actually a very thin line between a winning real estate investment and a losing one. They understand that the key drivers of growth and real estate appreciation are economic and policies. The combination of these two or a single one of these factors could significantly change the value of a real estate investment.

The economic factors that often positively affect the value of land are business and employment. If you observe that companies are moving to a particular area then you have likely discovered an area that will witness positive growth.

Businesses create employment and employment empowers several people. Workers and business people love to stay close to their source of income. A combination of these factors is bound to spur growth in that environment.

Government activities in an area or their firm commitment to executing certain projects in an area is bound to have positive ripple effects on the community. Zoning, change of use and infrastructural developments are the principal factors that can make an area attractive to informed land speculators. When the government changes the use in an area or allows it to be changed from a lower to a higher and better use, the community benefits. Roads, electricity and other basic amenities are bound to encourage growth.

Inexperienced, aspiring land speculators often wonder how astute investors end up buying large tracts of land and the answer is not as easy as it seems. Experienced investors have mastered the art of negotiation and the principle of leverage.

Often, the experienced investor usually secures his interest in a land transaction with a small down payment. They negotiate flexible payment terms and ensure that all necessary legal documents are signed.

The experienced land speculator always strives to buy in bulk and at a discount. The aim is to buy before the initial growth trend starts. Selling the land for a profit is also an art that only few are skilled at.

You must be ready and willing to sell and move on once the value falls within your predetermined profit margin.

Once the prices begin to rise, set a reasonable time within which to sell and move on. While you may not lose your investment, it is possible to miss out on a boom as a result of indecision.

#Punch

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