Is Buying Land a Good Investment?
Today, we’re going to take a look at land investing verses house investing.
What are the pros and cons of each and is one type of real estate investing better than the other.
If you’ve read my article on flipping money then you know that when I started land investing, I started with just $1,000.
I was able to invest that $1,000 in land and grow it to over $100,000+.
I never thought it would grow that much but here’s an overview of how all that all went down.
Now you know my story, so let’s dive a little deeper into our topic “Land investing verses house investing”
What are some of the benefits of land investing vs. house investing?
Is Buying Land a Good Investment?
Obviously, I think that it is or I wouldn’t be writing this article.
Just like any other investment though, you have to understand what you’re doing or you could lose your shirt.
If you take the time to learn the intricacies of land investing, I believe it can be one of the best investments you can make with your money.
So let’s take a look at why I see it as a strong investment and you can make a decision for yourself.
#1) There is Less Competition in Land Investing
First, the land investing market is not nearly as saturated as the house investing market.
With all the house flipping reality shows out there, flipping a house has become a cool and sexy thing to do.
Everybody and their brother wants to do it as soon as they have the money (or credit) to try.
The problem is, it makes competition fierce and actually finding a deal that will be profitable becomes almost impossible.
They won’t tell you that on the reality shows but the margins are getting slimmer all the time when it comes to flipping houses.
If someone’s trying to sell a junk house that’s been in their family for generations, you (as a buyer) may be competing with 10 other people.
Half of those buyers may not know what they’re doing so they will be inclined to overpay and offer too much in order to secure the deal.
Unfortunately, this takes all reasonable offers for the “fixer-up” property (including yours) off the table.
Land investing isn’t nearly as mainstream and sexy… so even though people are catching on, competition is still very minimal.
In some areas, competition for land deals is practically non-existent.
When it comes to investing, Earl Nightingale said something to the effect of:
“Look what the masses are doing and do the opposite.” -Earl NightingaleLook what the masses are doing and do the opposite. -Earl Nightingale Click To Tweet
That’s not a bad piece of advice and it rings true when we start talking about land and real estate investing in general.
#2) Land Investing Requires Less Capital
You can start land investing with a much smaller investment amount than you will need for house investing or flipping houses.
You can literally get started and NOT borrow ANY money.
In fact, it’s actually pretty hard to get a loan to buy land.
Most of my land properties I’ve purchased for $500-$5,000.
The highest I’ve ever spent to buy land was around $15,000.
Those aren’t down payment numbers!
That’s the total cost to own the land 100% free and clear!
With house investing, you typically need at least 20% down and that doesn’t include closing costs or remodeling which I’ll get to in a minute.
The Bible tells us in Proverbs 22:7, “the borrower is servant to the lender.”
I don’t like to borrow.
I avoid it like the plague.
After you invest in a piece of land, you own it free and clear.
You don’t have to worry about making payments (if you do it right).
But let’s go back to the investment costs of land investing and then take a look at house investing.
If you’re buying a $200,000 house, you’ll typically need $40,000 (20%) plus some closing costs, plus some money for remodeling.
That’s why they call it a “fixer-upper”.
The only way around all that is to do some sort of creative financing or bring in a JV (joint-venture) partner, which adds another layer of complexity.
House investing with creative financing means you must convince the seller to your terms and using a JV partner, which means you have to find somebody with money.
Not only that, your money person must also be willing to split the deal with you.
This is all important because the amount you invest (and risk) is super important when we start talking about the kind of profits you can make investing in land or in houses.
In a minute, I’m going to show you how you can turn more profit by investing the same amount of money in land than you would make by putting the same amount in a house.
I’ll break those numbers down in just a minute but first let’s look at the deal as a whole.
#3) Less Is More
There are very few moving parts when investing in land.
That means less that can go wrong.
Don’t get me wrong, I like the house investing reality shows… I really do.
But what inevitably happens is something goes wrong.
Something always goes wrong.
Once they get into the house flip and into the walls, then there always seems to be one or more of the following:
All these issues erode your potential profits.
Of course, on television it’s no big deal because the flippers (hosts) are probably getting paid more per episode from the TV network than they’ll make on the flip… so they don’t have too much to worry about.
That’s not the case with the average investor who just sunk his last $35,000 to buy a fixer-upper house only to realize he can’t complete the job because it’s going to take $70,000.
With land investing you pretty much know what you’re getting… dirt.
My mentor likes to say there are no termites, tenants, or toilets.
All you have to do is make sure it’s a buildable piece of land with legal access and preferably not in a flood zone.
There are different things to look and watch out for in different areas.
#4) Land Doesn’t Require Physical Viewing
This is one of the best things about land investing and it allows you to scale rather quickly, even as a 1-person operation.
Once you know what to look for and what to stay away from, you can assess most land investments completely online using maps, county data, and google images.
I rarely go and physically look at any piece of land I buy.
So how do land profits stack up to house profits?
With my land investment deals I normally shoot for a $10,000 – $25,00 profit.
That seems to be my sweet spot.
It’s not too difficult to pick up properties worth $20,000-$50,000 for 10-25k below market value.
I think it’s because when people need some cash and they have land, they see it as a way to get cash quickly.
It’s what I like to call the yard sale discount.
You’re probably wondering what a “yard sale discount” is.
Have you ever sold something for a dollar or five dollars at a yard sale that you paid $20, $50, or $100 for?
I think we all have.
In those situations you just want to get rid of it and be done with it (whatever “it” is) and get it out of your house.
People rarely think like that when it comes to a house. You’d be hard pressed to find somebody who has a $100,000 house they are willing to sell for $20-$30,000.
However, there are plenty of people who sell land like that because they just want to get rid of it and get a little cash, and they want to do it the easiest way they can.
So let’s say you strike a deal to buy some land.
Since you’ll do all your due diligence online and pay cash for the property, the title company can usually close in 2-3 weeks.
Going back to the “yard sale discount”, often sellers will take offers that are below market value in order to get cash in their hands quickly.
When that happens, you’re looking at some pretty hefty profits.
If you buy land for $10,000 and sell for $20,000 you make $10,000 profit (not county closing costs).
That’s a 100% return on your money.
Technically it’s even more than that.
When somebody says “I made 100% return on my money” you should also be looking at the timeframe.
They usually mean 100% per year.
If you do the land flip above with the same capital every quarter for the entire year, you turn your 10,000 into $50,000.
(4 flips netting you $10,000 per flip using the same initial investment)
That becomes $40,000 profit so you got a 400% ANNUAL ROI (return on investment) on your money!!
Where else can that even happen?…
Nowhere else that I know of!
This brings me to my next point… investment turn around time and the velocity of money.
Since there is less to look for in land and you don’t physically need to inspect properties, you can ramp up how many offers you’re making and how many properties you’re buying and selling.
Basically, you’re able to increase the volume of your deals.
With house investing, you really need to do a lot of due diligence before you make an offer and certainly after an offer is accepted.
Plus, you’ll still potentially missing expensive problems because they might be hidden beneath the surface.
On top of that, it’s going to take time and manpower to fix the property up and get it ready to sell.
It would be hard to run a crew (or multiple crews) and do 10 house flips at a time.
The logistics would be enough to make you want to quite (as well as the bill at the end of the month).
With land, you can do land flipping deals as fast as you can make offers and get the paperwork done (or submitted to the title company so they can do it).
Think about it like this….
Let’s suppose you spend $200,000 total on a house flip.
This means that you buy it, remodel it, and sell it and your total investment including closing costs and remodeling was $200,000.
Let’s assume your only out of pocket money toward the investment was the 20% down payment.
So you spent $40,000 cash to acquire the investment home and fix it up.
Now let’s say the improvements take you 3 months to do and then you sell your fix and flip house investment for $250,000.
Now how about we subtract the cost of your closing costs… to keep it simple we’ll say those were $10,000 (they are typically more than that).
That leaves you $40,000 in profit on your house flip and it took you 3 months.
Now let’s see how making the same amount of profit in land might look.
Let’s assume you start with the same amount of initial investment funds: $40,000.
Instead of investing it in 1 property (like buying one house), you spread it out and pick up the following land investments:
2 properties for $10,000 each (that have a value of $25,000 each) and 4 properties for $5,000 each (that each have a value of $15,000 a piece).
That is $40,000 total- invested into 6 properties.
Here’s a chart to simplify and let you picture how the profits stack up quickly.
|Purchase Price||Market Value||Equity/Profit|
Suppose you list them and sell them within the same time frame it took you to fix your house (3 months) and WAH-LA!…
You just made almost twice as much profit and you didn’t have to do any remodeling.
All you had to do was list the properties and field the phone calls and wait.
Waiting is much easier than remodeling… and it’s cheaper!
Of course the numbers won’t be exact and pretty like the example above but you can certainly make those kinds of spreads.
In fact, I would argue that if you did 6 deals one of them would end up be ridiculously and insanely profitable and probably get you closer to $100,000 in total profit.
When I find investment land worth $15,000 – $20,000, I try to back out all my closing costs upfront and still make sure that my spread of pure profit is at least $10,000.
Of course I can’t always make that happen.
I’m not going to walk away from a profitable deal because it doesn’t hit some random number, but that is my financial goal going into deals.
However, while looking for land properties in that price range, you will sometimes pick up properties for under 5k that will still bring you the $10,000 spread.
Keep in mind that if you wanted, you could also do improvements to the land and increase the profits even more.
Just to be clear, I have NEVER done that… NOT once on any of my flips.
It’s just not necessary and it slows down the number of deals you can do.
This is when it’s important to understand the velocity of money.
Besides, all my business endeavors are meant to bring in cash, lower my stress, and give me more time freedom.
Modifying and improving land might make me more, but it will add stress and take away my time, NOT free up my time.
#5) Land Investing Offers Ridiculous Margins
We’ve talked about some average land deals and I’ve hinted that there are better ones out there.
But I haven’t talked in depth about the deals that pay ridiculous margins.
If you’ve never invested in land you may be looking at the numbers I’ve already posted and thinking… “100% ROI on one deal IS a ridiculous margin”.
But it’s not… not for land investing.
Let me give you a real-life example and it may seem like this would never happen to you but I’m telling you… it will.
Every time I get a deal like the one I’m about to share, I think it’s a once in a lifetime thing…. Until I get another one like it.
So here’s the land deal example:
I bought a 2 acre property on a busy highway once for $500 plus closing costs.
“All-in” total land investment cost was a little over $1,000.
I got drone pictures done for less than $100 from some guy I found on Facebook (and I still use that guy to this day).
I listed the property myself on the MLS using a broker service for $150.
I sold the property for almost 28,000, netting over $25,000 in profit after closing costs (I pay the closing costs on the sale side too… it helps seal the deal with the buyer).
If I’m doing my math right… did I make 2,800% on my money?
I’m not sure on the math, but it’s certain more than 1,000% because 100% would have been doubling my money.
I multiplied my money 25 times on one deal!
Again, you would think deals like that are impossible to come but they happen more than you think.
Sometimes I think about why this happens in land investments and not in house investing.
I think it’s because when I get a request for an offer and I look at a property I’m not sure about, I say to myself, “I really don’t want this property” or “I think this might be hard to sell”.
When that happens, sometimes I pass and don’t make an offer at all.
But sometimes… I make crazy low offers that are borderline offensive if the property is worth a lot.
But the thing is, sometimes in land the value isn’t as easy to figure out as a house.
So sometimes you have to go with the worst case scenario.
If you’re looking at a property that could sell for $25,000 or could sell for $2,500… you can’t offer $10,000 for the property because you might lose a bunch of money.
That’s what happened with the property above.
There were similar properties that sold for $2,500 – $3,500 and there were similar properties that sold for $50,000 and one that sold for $75,000.
I’m not risking it… so I offered $500 thinking I would sell if for $2,000-$3,000.
But I’d be stupid not to list it at the top amount and work my way down to the low amount.
So I started at about $45,000 and when I got down to below $30,000… that was the magic number.
On that piece of land I made $25,000.
Again, I offered low because there were very few comps in the area and I thought it might be worth only $3-5k.
I couldn’t risk more than $1,000 on land worth $3,000.
If you’re going to invest in land or invest in houses (or invest in anything else) you must follow Warren Buffets rules of investing advice:
Rule #1: Don’t Lose Money
Rule #2: Please See Rule #1
I thought it was worth $3,000.
So to makes sure I didn’t lose money I offered $500 and to pay closing costs (which I knew would be in the $600 range).
It just happened that the land was worth much more than I thought.
The returns on that $1,000 was off the charts.
You won’t find houses or any other investments with that kind of spread unless you get lucky, it just doesn’t happen.
#5) Joint Venture Partners
Because land offers so much profit, there are a ton of land investors out there with more money than they have deals.
What does this mean for you or the new land investor just getting started?
It means all you really have to do is find a phenomenal deal and you should have no problem finding the money to fund it.
Here’s how that works.
Once you get the deal under contract, you would submit it for review to your JV money partner.
If the partner approves and wants to go in on the deal, he or she will fund the purchase based on what you agree to and split the profits with you.
This is what the market calls a win-win.
I’ve done deals with partners where we’ve split the funding of the deal and the profits evenly.
I’ve also done deals where my partner funded 100% of the deal and we split the profits 50/50.
You’re reading that correctly. I put in $0 dollars and I get to keep 50% of the profits for finding the deal.
That’s how I do most of my deals now.
The value I bring is in the deal and my money partners know it.
It all kind of depends on how much profit there is in the deal, how much trust you have with your money partner, and the preferences of your JV money partner.
#6) No Realtor Needed for Land Deals
When you’re investing in houses, unless you find an off market deal, you’re certainly going to have to pay realtor commissions when you close.
Unless you’re selling to another investor, there’s a good chance you’ll need to use a realtor when you sell as well.
That’s because home buyers are a little skiddish if things don’t feel normal.
They’re afraid of being ripped off.
So you’re going to be putting some of your profits into somebody else’s pockets just because that’s the “normal” way to do it.
Going back to my earlier example, if you sell a house for $250,000 and you’re paying 6% realtor commissions, you’re looking at $15,000 in commissions alone (plus closing and holding costs).
Sure, you may be able to get the buyer to cover them… but maybe not.
With land investing, it’s the wild west in many ways and you can exert some control over the deal.
If my buyer absolutely wants to use their realtor, then they are responsible for their own realtor fees.
If they want me to pay the closing costs, then they must use my title company or allow me to vet their company.
If their title company is much more expensive, I will only pay “x” amount of closing costs.
To be honest, this is rarely and issue and I’ve only used a different title company than my normal one a handful of times.
#7) Secret Hack for Selling Land Fast
When you do buy some land, here’s a secret hack for selling land that will help you sell land faster AND make more money at the same time.
What I like to do is… list my land on the MLS using an MLS listing service.
These MLS listing services charge about $150-250 to list the property on the MLS, but they don’t charge a commission when you close.
All the inbound calls and leads are rerouted to you so you can negotiate directly with the potential buyer.
This method has some other benefits as well.
For one, it also allows you to negotiate with realtors who have a buyer.
Sometimes realtors will call and ask if you’re willing to work with realtors.
Don’t say “no” and let them walk away.
At the end of the day, realtors are salespeople and often they are well connected in the community and may even personally know the buyer they are representing.
We like to think they get paid to represent buyers and sellers (depending on the situation).
The truth is, they get paid to sell.
They get paid to move property!
If you think they’re going to look at a property they won’t make any money on and decide it’s the best option for their client…. You’re living in a dream world.
What will actually happen is, they will look at how much they will make and if it’s very little, they may decide it’s not in the “best interest” of their client.
Why else would realtors call me ahead of time to see if I am willing to work with them?
The real question they’re asking is, “If I steer my client in your direction…. am I going to get paid”?
Let’s go back to the MLS.
Listing on the MLS is not the full hack… it’s only part of it.
Here’s the 2nd part of the MLS land flipping hack.
If you’re following the same system I use for acquiring properties below market value, you should have enough profit in the deal to entice realtors to bring you buyers.
Here’s a truth realtors won’t usually say to your face but it’s true.
Most realtors don’t want to deal with land because of the low commission dollar amount (6% of $15,000 is only $900).
To earn that small of a commission they have to basically do the same amount of work as they would for a house.
They have to show the property to their client, they have to do the paperwork, they have to… blah, blah, blah.
Mostly the same as a house.
So if you want to motivate realtors, bump the 6% commission to 10% and/or offer a bonus.
Why offer a bonus?
Typically commissions are split with a realtor’s broker.
Bonuses often go straight into the realtors pocket.
What you’re trying to do is structure the commission so the realtor gets to walk away with some good and easy money.
You also want them to think of you next time they have somebody interested in land.
If they get paid more from you than a normal land deal… trust me, they will think of you first.
Think about it.
Let’s suppose you’re a realtor and have a client looking for a 1 acre property to build on.
Let’s also say your client’s budget is $20,000.
Now, let’s imagine you find 3 properties that meet their criteria.
2 of the land properties offer standard 6% commission… BUT… they were listed by another realtor so as a realtor, you’d have to split the commission with the other realtor.
You would make 3% commission (about $600) if your buyer chooses one of those properties.
The other property is different.
Though it’s still $20,000, it has been listed in the MLS by the seller and there is no other realtor to split the commission with.
It’s also listed at 10% commission plus a $500 bonus if the buyer is bringing an all cash offer.
As a realtor you say to yourself… “self, I will make $2,000 on commission on this piece of land plus $500 because my buyer has all cash”.
That’s $2,500 vs. $600….
What do you think the realtor will recommend as the best option and/or best interest of their buyer?
By the way, the bonus for an “all cash offer” is a sneaky little play on words because banks don’t lend on straight land investing anyway.
That means ALL the buyers in the market for land are typically going to be using all cash.
So when the realtor tells you it’s an all cash offer… just smile and say “that is fantastic, I offer a $500 bonus to you if we close this deal since the offer is all cash”.
Of the two examples above, which piece of land do you think realtors will be highlighting the benefits of and which pieces of land do you think they will downplay by pointing out all the bad stuff?
Trust me, this little land hack works like a charm.
Do you know why?
It’s because as Zig Ziglar said, “You can have everything in life you want, if you will just help other people get what they want”.
Help realtors get paid and give a good piece of land to a buyer and you are helping people get what they want.
Now, you may think this is a way to manipulate realtors but at the end of the day, realtors will be following this thought process in their head anyway.
If you don’t do it, they’ll go with the land investor who does.
Now to be fair, not all realtors will work this way but realtors are people too.
I’m not calling their character into question, I’m just sayin’ they have bills to pay, kids to feed, cars to fix, etc.
If the land investment isn’t good for their client most realtors won’t just steer their clients in that direction for more money.
BUT!… If all things are equal and your land hits their clients “wish list” attributes just as good as the other pieces of property, there is no reason why the realtor shouldn’t steer their client to the highest commission and do it with a clear conscience.
#8) Land Selling Tip #2 – Use Drone Photos
Lastly, make sure you top off your MLS listing with Ariel drone photos and you’ll surely sell your land faster provided you’re at a competitive price.
Unlike house investing, pictures for land are much less complicated but most people do them wrong.
As long as pictures are taken on a clear and sunny day, they lighting will be perfect.
Unlike house photos where the house is often better than the pictures, drone photos usually make land look better than it is.
As long as your photographer has some good HD images from a drone and the lighting was good (i.e. the sun was out), the pictures tend to look really, really good.
With house photos, so much depends on the photographer, the lighting, their camera, and the skill and ability level of the photographer.
Plus, drone pictures are cheap!
I found a college kid on Facebook market to take mine.
I’ve never met him… ever!. He goes and takes drone pictures and videos for me on any parcel I want and charges me $25-$35 for pictures.
I can get video as well for another $50 but I usually just get the pictures.
He emails them to me and I pay him through Facebook, cash app, or PayPal.
Again, unlike flipping houses, you can flip land without leaving your house.
In the end, when doing the land flipping versus house flipping comparison, land flipping beats house flipping by huge margins.
In fact, flipping land beats most traditional investment strategies.
If you want to do a free training and learn the same system I use for finding and selling my deals, you can register for the next upcoming webinar here.
What happens if this all sounds good but you don’t have enough money to get started in land investing or house investing?
In that case, I recommend learning high ticket affiliate marketing, you can learn how I do that from the video below.
You could also try the world’s most profitable business model (which happens to be our favorite) to start bringing in the cash you need for investing.
Where there is a will, there is a way.
Set a goal. Set your beliefs, and then start taking daily steps.
Regardless of where you’re at, make sure you dream boldly, then take clear and strategic steps to bring those dreams to fruition!
If you like this article, you’ll probably also enjoy:
– 11 Things to Consider BEFORE your 1st Land Investment
Jason and Daniele
P.S. Making money is great, but if you’re trying to fill a void in your soul, money won’t fill it. It can only be filled through a personal relationship with Jesus Christ.