That dusty, dirt block may not be as glamorous as the property that promises ‘nothing to do but move in and enjoy’ but, for many Australians keen to get their foot in the property market, investing in raw land is a smart step towards building a property portfolio.
With the right research and knowledge at your fingertips, investing in vacant land could produce high returns and passive income.
Of course, as with any property investment, research is critical and to be profitable, it pays to apply some due diligence, rather than simply rush in to the first investment opportunity you see.
What is raw land?
Vacant, or raw, land is simply a plot of land that has no established buildings or equipment.
What you are buying is, essentially, untouched land that is undeveloped. With that in mind, understanding the zoning of vacant land is important and could mean the difference between potential profit and losses for you.
Currently, there are eight main categories of land use:
- Public or semi-public (such as a library, school, or bus station)
- Parks and open space
- Agriculture (this includes both farmland or forestry)
- Right of way (an easement that allows people access to their property through another piece of land)
Within these main categories, there are also many sub-categories, and that is how what type of development – if any – can be undertaken on the land is determined. It is important to note that some land cannot be developed and it is always important to understand the zoning limitations before buying.
Return on investment
With the right insights, buying land can produce sustainable, passive income or healthy profits.
Some raw land can cost millions of dollars, while other land parcels can be bought for just a few thousand dollars. For many people with substantial savings, that means land can be a low-cost investment that doesn’t require a bank loan at all.
Land is not endless
As our population continues to grow, the need for land that can be developed also grows.
Depending on the area and the fact that zoning regulations can change over time, land can be a positive long-term investment the future generations of your family could enjoy.
Crunching the numbers on whether land is a good investment for you needs to factor in annual rates, as well as the upkeep/fire safety of the block, including tree-lopping or lawn-mowing.
With no building repairs and no tenants to deal with, it can be a very low-maintenance, low-stress investment.
The benefits of subdivision
Subdividing your land parcel could be an option down the track, if zoning of your property evolves over time.
It’s important that you enter into land investment without expecting zoning will change – it may not – but if you do some research, you can buy wisely, and reap the profitable rewards of subdivision in the future.
Buy and lease
If your land investment goal is to create a passive income stream, you can look leasing the land for a third party to use.
For example, if the land investor owns 20 acres of farmland, they can lease the land to a local farmer and receive monthly rent, as well as the knowledge that land management is now the responsibility of the tenant.
With so many property investment options available, there is sure to be one that suits your own unique financial circumstances.
To find out more about how a mortgage broker can help you build a property investment portfolio of raw land, talk to our loan professionals at Lending Specialists today.