Many investors would probably agree that investing in underdeveloped land is the riskiest of all the different types of real estate investment vehicles. Therefore, most financial advisors would not recommend investing in land for reasons such as:
- Land does not generate income - Thereby creating negative cash flow.
- Land is illiquid – Cash is not readily available or the land is not readily saleable.
- Many lenders will not lend the necessary money or back up these projects due to the risk associated with such investments.
- There are other risks to consider, such as:
- Market Risk – The marketability of the land is always subject to supply and demand.
- Governmental Risk – Regulation and zoning laws are usually governed by the municipality in which the land is located.
- Environmental risk
With all of these risk factors, why do people still invest in underdeveloped land? Simply put, in business, the greater the risk the greater the return on investment.
The following are some reasons why investing in land is a very good idea:
- Land does appreciate, unlike buildings and shopping centers which deteriorate with time. Many studies have revealed that the value of buildings after 30 or 40 years are worth very little while the value of the land is all that remains.
- Land has many uses and options which can be profitable; as long as a good business strategy is put in place.
- Land is also very simple to manage.
- In theory, land will remain in demand perhaps forever; hence, investments in land are bound to grow, provided the correct buying strategies are utilized.
- Buying land also allows new investors to participate in purchasing real estate with smaller cash outlays. Others invest in land to diversify their portfolios and hedge against inflation.
Overall, investing in land is a good strategy for protecting your financial assets. Mark Twain once remarked, “Buy land, they’re not making it anymore.” However, like with any investment idea, careful planning, knowledge, experience and the guidance of an expert in the field are always helpful.
If you have any questions please feel free to contact Haj Financial and one of our representatives will gladly help you with all your doubts.