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Investing in Real Estate vs. Raw Land, Which is Right for You.

Posted by Jessica Richardson on

Investing is an important strategy to build wealth so you can retire later on in life. But you have several options like the stock market, 401k and real estate which are usually the most used methods. However, something that can be overlooked is investing in raw land. Investing in raw land can be a really profitable, low cost to hold investment in your portfolio. 


Investing in Real Estate vs. Raw Land


Investing in Real Estate 

Buying a home, Condo or apartments can be profitable if done right. You most likely will have to take out a mortgage, so expect to have some monthly payments and make sure you can cover that. Otherwise you risk losing money if you can't rent the place or make the payments on your own. If you can't sell it at that point you could lose everything. 

You need to know the market, how much work will need to go into it, how much you can rent it for and if the value can increase in this particular area. Several people have made huge mistakes and ended up owning a burden they don't want to lose money on, so they end up holding it and drain cash into it. You really need to plan these things out because remember, you owe the bank money and they want it back. 

broken home

A lot of people see income coming in from their property using renters or AirBnb. While this is great, it may not pan out unless you are rock solid on your plan. You really need to look at rental prices in the area, how much you can make annually vs. expenses on the home, property taxes and mortgage. You don't always have to cover all that in full as it just helps to have someone paying of part of your home rather than you. Rentability of your unit is important, using a property management company can help with this but you pay them monthly fees. It is crucial to plan for lack of a renter, you do not want to get caught not being able to cover your payments just because you can't seem to get a renter. Expect at some point you will have some renter troubles, it's awful but people do some terrible things. From squatting to wrecking the place, you might need a lawyer and sometimes even owe your tenet money. Surprisingly, even in the United States a tenet can change the locks and stop paying you rent. There are actually laws to protect them because they may not have another place to go. In some cases you end up paying them money so they can have a place to go. Also a big problem is people wrecking your place, even enough where a security deposit won't cover much of the damage. 

There is a lot to consider investing in real estate as it may go down in price for while due to the market or it can make you a good amount of cash. But be cautious and do your homework.

Investing in Raw Land 

Investing in Raw Land is often completely over looked as a way to build wealth. However, it is actually a great addition to a portfolio or some of your first investments to start with. This is mainly because there is usually zero maintenance, low cost to hold annually and potential for major returns.  

landzero

Surly most readers have seen some great lots or larger parcels of land within a growing area. Some of these go for millions, yet have you ever thought about how much they cost to begin with? In a less developed area back 10-15 years or more ago, chances are they paid a pretty low price. They also most likely only paid property tax and the cost of putting a fence around it in some cases. Both these are very low, land has a lower taxable value so you get away with holding it for way less then a home. Over the years, developers came into the area, built stores, homes and offices. Now the area is lacking more and more land, so the price you can sell it for soars. Often times it was bought for a really low rate years ago. 

You don't need a ton of money to start land investing. Lots and parcels can go for less then $10k which is offered as cheap land for sale on sites like LandZero. You may think "Well these can't be good", but take a look. These can be walk to lake lots in wonderful family communities. Some of them may have just been hit as a vacation home area during a major housing downturn. This even happens in Hawaii often with real estate, second homes or investments are the first to go during a collapse. This isn't because they aren't good, it is because the owner didn't plan and could be living on credit. They may need the cash due to a job loss, mortgage payment or many other things. Overtime, holding these lots under $10k have a great potential to go up as the community builds further. 

Say you don't even have $10k cash to spend on land, chances are a bank won't give you a loan or any family member. That is where companies like LandZero come in, they offer payment plans so over the course of a few years or whatever terms you are comfortable with. You ended up holding the land as yours and eventually own it outright. It is best to use a company like this rather then just a person you don't know on ebay or something. Companies are LLC structured, hold an image to satisfy customers and have expertise in the business. 

Land can hold pretty well during a real estate collapse. It is really low cost to hold and inflation resistant as well. People find it a better buy when housing is dropping hard. They know once it starts going up, the next phase of development will come by major developers. This is a cycle, they build during up times, pause during down and then start again when it goes up again. 

In conclusion, there are many ways to invest and it is always recommended to diversify your portfolio. Land is a buy and hold strategy, it can be used if you want to build on it and has a very low cost annually to keep it in your portfolio. So don't discount it as a good strategy as well or you could miss out. 

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