Giovanna Trabasso / 01/07/2021
Top 5 Reasons Why Owning Land is a Profitable Investment
When it comes to buying and owning land with the primary purpose of it being an investment and source of income, many expect to buy their property at a low price, wait a few years for it to appreciate in value, and sell at a higher price, making a profit over their initial buying price. If researching land as an investment with this mindset of appreciation, you might come across arguments against it. That is mainly due to most forgetting about taxes and mortgages that must be paid as the land appreciates, factoring in as a loss in eventual profits. Also, many advise against it as land might not necessarily appreciate as much as you’d hope under various circumstances.
While those concerns are valid and should not be ignored, it’s the appreciation mindset itself that is inherently faulty. Buying land is an excellent and profitable investment, but for numerous reasons beyond appreciation in value. If you’re thinking about buying raw land now or in the near future, here are the top five reasons why owning land is a profitable investment. If you’re still unsure or against it, these same reasons should change your mind.
Yes, land appreciates in value with time. While it shouldn’t be your primary reason to invest in raw land, appreciation happens and should be taken into consideration. If your main goal is to have the land itself as your primary investment, no upgrades or usage as it appreciates, your eventual profit might not be as grand as you’d hoped.
Land appreciation also comes in rent increases, for example. When becoming a landlord, as your land appreciates with time, rent values may be increased, generating additional income. Remember, raw land is a tangible asset and while likely, appreciation is not guaranteed, being the main reason why it should only be your first consideration when buying land as an investment, not your primary.
2. Extra (passive) income
Renting is always an option and an excellent way to pay down your mortgage or property taxes. Depending on zoning, there are many ways you can rent your property. When it comes to raw land, developing on the property is always an option, especially with rentals in mind.
If your sole interest is investment opportunities and don’t plan on building a house or your property is not zoned as a residential property, pay close attention to how your property is zoned. Depending on zoning, you can expand your options into camping, hunting, RV parking, ATV riding, daily rental for events. Most importantly, know your land well. When familiar with your property, there’s no limit to generating extra income from it.
3. Tax breaks and benefits
Tax breaks and benefits are often largely overlooked when it comes to land as an investment. People often focus on mortgages and taxes they will need to pay as landowners, and forget the benefits they can get. There are numerous tax breaks and benefits that property owners can take advantage of. Reasonable costs can be deductible from owning to managing your property. However, it’s important to note that while real estate can be depreciated, land cannot, even if you depreciate the building within your own land.
Section 1031 of the International Revenue Code (IRC) is incredibly important and can provide property owners with additional benefits. Popularly known as the Starker Loophole, Section 1031 allows for property owners to defer federal taxes in some exchange of real estate. This is only available for investment purposes, not available for buyers and sellers looking for homes for their personal use. While always an option when choosing to invest in land, there are a lot of rules and regulations that come with Section 1031. Proceed with caution, do your research, and take advantage of what applies to your investment.
Investment properties might not qualify for a mortgage tax deduction, but you can still deduct operating expenses. If land investment really is the thing for you, when buying properties with the money you made from selling a different property, you can defer the taxes you paid when selling your investment property, your capital gains — usually ranging from 15% to 20%, often lower than one’s personal tax bracket.
4. Preparing for retirement
The sooner you buy land, the more you can do with it. Firstly, the longer you own it, the longer you have to build equity. Also, you have more time to make it your dreamland for retirement, making it the private oasis of your dreams. With more time you can spread your development expenses and dream bigger. It’s never too early to start looking for your forever home. It’s even better if you can choose the perfect location and build it from the ground up specifically for you.
While you might choose to venture into bigger projects as a land investor, you can always choose the perfect property that you keep for yourself. When choosing land for your own use, especially residential zoning for retirement, it requires a bit more research. Think about all aspects of the location, if it’s apt for what you want to develop on the land, what the neighborhood is like, what’s around you. There’s a lot less competition in land buying than home buying, giving you more leverage when choosing your ideal property.
5. Options are endless!
The most important question to consider is: what do YOU want to do with your land? The options are endless, but some research is always required. There are different types and ways of investing in land. First and foremost figure out what your main goal is, especially when it comes to understanding zoning.
If you want to live in the land yourself and build your dream home, commercial and residential land investment is the way to go. This is the most common type of land investment. It’s the most familiar to the general public and it brings you the most personal use. While zoned specifically for these usages, commercial and residential land comes with a lot of planning. Make sure to do your research and set your goals.
Other types of land investments are farm land investing and crop and livestock land investing. These are trickier but can be very profitable when done right. These might not require as much development, but require further research about the land itself and its surroundings. Investing in farmland goes beyond livestock, it can generate income from orchards and vineyards, timber, minerals, and so much more. This type of investment isn’t something you’d get into as a beginner, it requires expertise beyond knowing the land.
There is so much you can do when buying land as an investment, it’s all up to you. The most important take-away is that no matter what you decide to do, you must always do your research. Always stay up to date on regulations and benefits that come with owning land. Are you ready to start investing and own your piece of America? Community Lands is here to help!
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