Investment Land

Land investment is one of the oldest and most widely accepted routes to building wealth. Though this is true, on a contrasting spectrum, it is the ability to consider land for investment the way one would consider investing in stock or bonds and the actual prospects of realizing growth within a period of holding the asset. Advanced investors and beginners, whose degree of diversification is still wanting, can get the lowdown on how to go about investing in land and how the same holds the key to many a valuable financial opportunity. To assist in the overview, this article will discuss some essential benefits, factors to consider, and strategies that would help you make some wise decisions and land you the most returns on your investment land.

Table of content

How to Invest in Land

Types of Land Investments

• Residential development land
• Commercial development land
• Row crop land
• Livestock-raising land
• Timberland
• Mineral production land
• Vegetable farmland
• Vineyards
• Orchards
• Recreational land

Small Farm Investment Opportunities

Issues to Consider

Comprehensive Guide to Land Valuation

8 Reasons Why Raw Land is a Preferred Investment

• More Flexible and Increased Resale Value
• Lower Initial Investment
• Low Start-Up Budget Required
• Freedom in Building Style
• Finitude and Resource Limitation
• No Instant Build Needed
• Hands-Off Investment Opportunity
• Affordability of Land

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How to Invest in Land

Land investment often proves to be invaluable and precious, as it can be recommended due to its scarcity. However, how the experience of owning and managing a business on land is put into practice on a daily basis becomes essential for the investor to get a grip on. Besides that, there is also a collection of more fine-form land investment opportunities through financial intermediaries where exchange-traded funds and exchange-traded notes are included.

KEY POINTS

• The risk in investment into undeveloped land is that it may not give any returns in terms of income or increase in value.
• Joint land investments will be in residential and commercial development zones, farmlands, vineyards, orchards, mineral lands, and recreational lands.
• Prospective land investors should consider the various investment opportunities available through ETFs and ETNs.
• For small investors, REIT ETFs are a good buy for the simple reason that they are cost-effective, do not involve hands-on management, provide extensive diversification, and have real-time facilities for the purchase and sale of these instruments. 
• Many different kinds of land-based investments are covered by numerous ETFs and ETNs, such as forestry, mineral resources, and agriculture.

Types of Land Investments

While affluent individuals may purchase land for personal use, recreation, and investment, most people do not have this privilege. This leads to the question: Can small investors find land-ownership opportunities and business ventures that yield a satisfactory return on investment while also providing the enjoyment and benefits of land ownership? To explore this, one must consider ten general categories of potential land investments:

Land allotted for residential development

The feasibility of investing in residential land development is open to most investors. The reason is that many opportunities afford smaller investors the chance to conform to their financial and time constraints. REIT ETFs are particularly attractive to smaller investors. The ETFs provide passive management in investments. The ETFs allow ample diversification across property types. The ETFs allow diversification by geography. ETFs are liquid, as mentioned above, and low in cost. There are some REIT ETFs that are narrow in focus; some are pretty broad. For instance, the Vanguard REIT ETF (VNQ) has exposure to industrials, offices, retail, healthcare, public storage, and residential property.

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Commercially zoned land for development

Other types of opportunities are in commercial land investments for these market players. Like residential-type REITs, commercial REIT ETFs offer all the benefits of diversification, liquidity in trading, and low costs. This could be in office buildings, retail centers, industrial properties, or healthcare facilities. Such a capital investment would, however, not usually give the landholders the opportunity to use and enjoy the land themselves. As such, residential and commercial land development may not be the best idea for an investor who wishes to have the personal fulfillment that goes with land ownership.

Row crop land

Buying land for row crop farming combines the benefits of land ownership with income generation. However, this investment route presents substantial challenges for small investors. A profitable row crop operation must operate on a large scale, necessitating a significant initial capital investment that is often beyond the means of most individuals. Moreover, the ongoing costs of maintaining such a farm are exceptionally high.

This scenario results in high financial leverage and business risks, exerting considerable pressure on the landowner to ensure the operation's success. For many, the stress and risk involved outweigh the benefits of owning land. Therefore, it is generally recommended that small investors avoid large-scale row crop farming due to the associated risks and difficulties.

Livestock-raising land

Land ownership with respect to livestock farming offers a dual thrust in land ownership and income generation with equal impetus. In as much as the initial high investment required may lock out small investors from commencing livestock farming, it simply means for a livestock operation to be financially sustainable, one has to farm on a big scale, which brings a large initial investment outlay, plus a high cost of production.

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For instance, financial leverage and risks in livestock farming are significant, especially when it comes to land ownership. It is most convenient for the small investor who mostly thinks of significant investments to try avoiding large-scale livestock farming because of the attendant risks and challenges.

There are other alternative opportunities for those interested in agricultural investments. Quite a few funds offer investors an opportunity to invest in corn, wheat, cotton, sugar, soybean, coffee, and livestock in much the same way as traditional farming would, but without taking care of the operations. This product may be informative for investors regarding agricultural practices and provide attractive returns.

Small investors can also consider exchange-traded notes (ETNs) for specific agricultural investments. For instance, the iPath Bloomberg Agriculture Subindex Total Return ETN provides exposure to the commodities corn, wheat, soybeans, sugar, cotton, and coffee. Meanwhile, the iPath Series B Bloomberg Livestock Subindex Total Return ETN goes back to basics, focusing on hogs and cattle.

It thus has to be kept in mind that when making investments in agriculture through ETFs and ETNs, many of these products use derivatives to gain market exposure, futures contracts being one example. There is, hence, a real need for deep due diligence to be carried out, and the risks associated with and rewards of such investments must be understood in detail. This is a natural, practical way for a small investor to participate in traditional large-scale farming operations.

Timberland

Owning timberland offers this double pleasure: enjoying nature's beauty while reaping from the periodic sale of timber. Timber farms do not need colossal management time and allow the management of the acreage actively in other ventures. Since trees grow with minimal effort with time, several trees can be harvested, offering payments. Moreover, timberland increases in value in a short time, which results in immediate gains and long-term monetary gains.

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Mineral production land

In general, land that includes mineral rights can bring in very high revenues, depending on the mineral, oil, natural gas, or something else that was found on it and extracted. This type of investment allows the landowner to lease the mineral rights to extractive companies that will work to create income without sizable personal intervention. This provides an opportunity to obtain significant monetary benefits while, at the same time, remaining the owner of surface land that can be used for something else.

Farm fields

On a small scale, vegetable farming can be profitable and enjoyable. This investment can include producing a range of crops for local consumption or local markets. Within this very land use, many people are attracted by the more agricultural and ecological style of farming. Vegetable farming gives a feeling of satisfaction not only to the producer but also an opportunity to earn something from it. It also can connect people very much to their local community through farmers' markets and sales directly to the people.

Vineyards

In this light, investment in vineyards enables small investors to partake in this relatively lucrative wine business. Very profitable grape-growing businesses usually involve those who grow high-quality grapes that are mostly in demand by wineries. Knowledge and experience in the sphere of viticulture and winemaking can be advantageous personally and financially for the investor. Very often, vineyards become unique places for oenophiles, and therefore, they can draw attention, resulting in even greater interest and additional income from visits, tours, and events.

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Orchards

This means that it would be an excellent experience to own an orchard and harvest an income in the future from fruits like apples, oranges, or cherries. An orchard churns money into the pocket through the years when trees mature and grow fruits. They add beauty to the property but assist in increasing land use by increasing property values—be it for residential or leisure purposes. Orchard fruits also add to the economy of a place and are a way of getting fresh produce to the larger community—more than just the economic returns.

Recreational land

This kind of property can be used for different kinds of investment purposes: hunting, fishing, camping, hiking, and many more. This type of property suits best for the individual who wants to use it self-recreationally but rent or lease it out. One can develop recreational land for cabins, trails, and campsites to accommodate people who love going outdoors. Such dual-purpose use of the land has its total value or potential maximized and is an excellent way for the investor to enjoy their investment to the fullest.

Small Farm Investment Opportunities

The most suitable alternatives for small investors who expect to experience the time-honored rewards of owning land would be timber farms, vegetable gardens, orchards, mineral development lands, vineyards, and recreational land. Attractive in these businesses is their modifiability to fit the budget of the investor, their potential to provide reliable income, and the ability to enjoy actual use of the land.

That said, there are exchange-traded funds and exchange-traded notes that allow participation in this kind of agricultural investment without the time or resources needed for one to manage a small farming operation. What these securities do is provide for the investor to be involved in the activity of farming and land development but without active management.

For instance, the Invesco MSCI Global Timber ETF (CUT) tracks timber companies globally and invests in firms that own or lease forested land, harvest timber for commercial purposes, and sell wood-based products. Similarly, the SPDR S&P Oil & Gas Exploration & Production (XOP) grants access to land developments associated with mineral resources. These ETFs and ETNs provide small investors with an easy way to profit from land-related investments without needing to be directly involved in farming.

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Key Considerations

Acquisition for investment or development of raw land includes innumerable legal and practical considerations—for example, land use restrictions may limit the use to which property may be put, an easement might allow others access to parts of the land, or mineral rights permit unrelated parties to extract and sell minerals.

Additionally, coastal and riparian rights may be established that would affect water access to the property owner, and the topography of the land may indicate it is part of a flood plain, which would very adversely affect usability. A purchaser may have access to all of this information from the land deed, a legal document stating the specifications of the property. Land deeds are all available online or through the land records and deeds division of the county clerk's office.

In addition to legal aspects, small investors should consider the land's access to essential utilities like electricity and telecommunications. It's also important to evaluate the annual property tax obligations, the risk of trespassing, and the land's proximity to the owner and nearby communities.

These factors are crucial because a lack of utilities can significantly hinder the land's use, its remoteness can affect the owner's ability to enjoy it, and property taxes can impact financial planning. Given these considerations, prospective landowners should perform comprehensive due diligence before making a purchase decision.

Comprehensive Guide to Land Valuation

It is also incumbent upon investors to realize that purchasing vacant land is a speculative investment. As previously noted, the acquisition of an investment in vacant land generates no income; therefore, if a gain on the investment exists, it would be recognized only upon the sale of the land from capital gains. At the very least, when calculating an initial investment, one should consider the current going rate on debt for a farm real estate loan.

From a pure investment standpoint, raw land typically offers a low return on investment, particularly given the extended time frames often required to realize a profit. Additionally, rising interest rates for farmland loans could increase future break-even rates, further complicating the investment landscape.

Suppose small investors remain undeterred by the expense of borrowing and believe they can create a successful small farming operation within their financial and time limitations. In that case, numerous valuation reports are available to aid in their decision-making. These reports, often provided by agricultural departments at public state universities, offer valuable insights into the feasibility of starting various types of small-farm businesses.

For those interested in timber farms, vegetable farms, vineyards, or orchards, these reports provide detailed analyses of how to set up such operations. They cover the amount of work involved, the required capital investment, the expected timeline for returns, and the potential profitability over time.

More importantly, though, investors need to respect that the beginning of a small farm business venture is among the most challenging and risky. Besides the quite common risks associated with any business, farming is characterized by unique problems: diseases of crops and pests, unpredictable weather-related changes, and market prices. Aside from the requirement for a lot of physical labor with great endurance and good work ethics, the venture of farming is challenging to continue for the majority of the investors in the long run.

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8 Reasons Why Raw Land is a Preferred Investment

Raw land presents several advantages that make it an appealing investment choice. Here are the reasons in detail:

More Flexible and Increased Resale Value

Raw land carries unbeatable flexibility compared with built property like houses. Changing the layout or the architecture of an already-built house takes both time and quite a lot of finances. Raw land allows you to design and build your dream property from scratch, including everything you may desire, need, and afford. Furthermore, with such flexibility, the value of the thitherto raw land upon resale can increase, which the potential buyer can find attractive because of the potential in building to one's vision.

Lower Initial Investment

It would be relatively cheaper to buy raw land than buying already developed property, be it apartments or commercial buildings. This lesser initial investment makes raw land accessible to a variety of investors. Many thus choose to buy land early to develop later on when they have more financial resources that it serves in the long-term as an investment.

Low Start-Up Budget Required

The purchase of land is a low-cost investment. One can buy a plot with even small money or on installment, which makes it pocket-friendly to a wide range of potential investors. Now, here is where this inverts the norm and makes it so even more people can invest in lands.

Freedom in Building Style

Raw land ensures that you can build it in any style you want. Many pre-built properties actually come with some structure and a lot of restrictions, but the raw land allows you to build what you wish and according to your specific tastes and requirements. That kind of freedom makes sure that your property truly speaks to your style and needs.

Finitude and Resource Limitation

Land is a naturally endowed resource that is considered valuable due to its finite availability. Its limited supply makes its value generally rise as availability decreases with time. It is quite possible to resell land at a higher price in the future and expect appreciable benefits. This makes it one of the best long-term gain investment avenues.

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No Instant Build Needed

One of the good things about investing in the land itself is that you do not have to worry about developing or building anything right away. You did not have to be an expert at renovating a property or building something at the time. With raw land, you could wait and hold on to that land until the time or the financial situation is suitable for development.

Hands-Off Investment Opportunity

Raw land is a passive investment opportunity. You can develop it, build on it, or sell it when the right time comes and make a killing because of high demand, which usually translates into excellent ROI. It's a good option for individuals who would like to engage in less active management.

Affordability of Land

Land is typically even less expensive to buy when compared to developed properties. Without the mortgage fee, utility costs, and the low tax value on the property, investing in land is very cheap when it comes to building up wealth. Acquiring land in an area with an expected rise in the value of properties can also be very promising for future gains.

In addition, the other primary reason for investment in land is that it generally calls for lower competition. Owners of vacant land are typically motivated sellers, and here lies some more significant potential for sweet deals. This, among many advantages of investment in raw land, makes land a preference for many investors.