Is Land A Good Investment?

Posted by Steve Harmer on Tuesday, June 2nd, 2020 at 3:16pm.

Buying Land as an investmentWhen it comes to investing your money, land has always been a valuable commodity to consider.

When you invest in a piece of land, the opportunities are endless. Perhaps you’ve always dreamed of building your own home. Or, you could hold onto it until the value appreciates and sell it to a developer. Some people even purchase a plot of land to raise cattle on, knowing that at some point they can sell it on if they wish. Land has so much potential, that it makes for a very flexible investment. It’s also possible to purchase land close to your own home to increase its overall value.

Like with any investment, there are some key strategies to help you make the best purchase decision. While no investment can be 100% guaranteed, land remains a safe one so long as you take into consideration some key pointers.

As a land investor, there are several important key information when we start signing checks to buy raw land. Land Can Be Deceptively Complicated!

On the surface, it seems like such a simple creature – but there can be A LOT of potential problems lurking beneath the surface of any piece of land. I wouldn’t necessarily say all these issues are common, but the fact is – any one of these things could potentially be a deal killer if not addressed properly. When you take it all into consideration, it adds up to a sizable list of things that ought to be investigated as part of your due diligence process.

1. Easy Money?No easy money

We often hear comments and remarks from land investors believing that by investing in “raw land” there are fewer problems and it is easier than investing in houses or commercial buildings. After all, who wants to deal with plumbing problems late at night from a tenant? Or termite damage, electrical problems, heating or air condition issues, or septic nightmares? These problems are real and it does happen but the land has its own issues and problems.

2. Terrain and Elevation

The terrain is a huge factor when purchasing raw land. Many investors think they can buy raw land before they even see it. Some buy raw land thinking they had a good deal ends up sitting on it for a while longer than they wanted to. Make sure that you actually visit the property, walk it. Make sure that it's not sitting on a mountainside and the land is just too steep to really do anything on it.

Another factor you need to consider is the possibility of land stability. Is the area known for mudslides, earthquakes, volcanic, or floods (I’ll talk about floods in a moment). But knowing these conditions are important.

3. Is the Property Landlocked (Are there any Easements or Access Roads to the Property)?

It’s an odd phenomenon, but believe it or not – there are thousands of properties all over the country that have no road access. They are surrounded on all sides by other private property – which (according to some) deems the land virtually useless. In a sense, these properties might as well be on the moon – because nobody can legally access the property. 

This issue can be overcome if you can establish a legal, recorded easement to the property. This can be done if one of the neighbors is willing to allow you access through their property – to yours. In many cases, a neighbor shouldn’t be expected to do this for free, you’ll have to give them a reason to help you (usually in the form of money). Again, this isn’t an impossible issue to overcome, but it is definitely something you’ll want to be aware of before you purchase.
 

Kamloops trees on land4. Treed Vs. Cleared

Another factor when considering purchasing land is whether or not the land is cleared or treed. If you want to develop a house you need to take into consideration the local regulations that either permit you or not to cut down your trees or not. Now, for the most part, you are probably alright. But in many cases, environmentalists will take the heart of killing trees. And if you do have permission you may need to replenish the trees elsewhere on the property.

5. Flood Area

Is there a beautiful creek running through the land, is there a scenic river nearby? The same creek in summer could be a raging torrent in the spring as runoff from hills and snow change the delicate watercourse into a land flooding issue. Flooding is more common than many thinks. I recently experienced flooding in my own neighbourhood. If you are building in a flood zone you need to make sure that insurance companies will cover the property. Because if a resident can't get flood insurance this may break a deal.

6. Utilities

Obviously having access to utilities is important. Utilities can actually be a deal maker or breaker. You need to make sure if the property is accessible for sewage, water, or electricity.

If you’re planning to build a “dwelling” of any kind on your parcel of land, there is one issue that may seem insignificant at first glance, but it has the potential to make or break a land deal. It’s called a “Perc Test” – and if you’re dropping some serious coin on land in a rural area, this is an issue you’ll want to be sure about before you sink your money into it. A Perc Test (also known as “Perk Test”, and more formally known as a “Percolation Test“), is a soil evaluation that tests the rate at which water drains through the soil. If a property doesn’t have easy access to the local sewer system, a perc test is required to determine whether a septic system (the alternative to a sewer) can be installed on the property.

Kamloops Perc TestIf a property doesn’t pass this test, you could have a very difficult time building any type of dwelling on the property, so unless you’re able to tap into the municipal sewer system (which will negate this issue altogether), be sure to give the county health department a call and ask them what is required to install a septic system (or connect to the local sewer) in your area.

There are a lot of properties in the world that don’t have access to a municipal water supply (i.e. – city water). This isn’t necessarily a problem, but it does mean you’ll have to drill a well in order to access a clean water source beneath the surface. There are a few ways to determine whether or not you’ll be able to do this but in most cases, if there are other buildings in the near vicinity (e.g. – homes or other dwellings built next door), this is usually a good indication that you won’t have any problems accessing water either. If you’re looking at a vacant lot in the middle of the desert or near the top of a mountain with nothing around for miles, you will probably want to verify with a professional that water will be accessible if/when you need it (and if your only option is to have it hauled in by truck, you’ll want to get an idea for how much this will cost on an ongoing basis).

A well can give you access to water but your electricity may be costly to install. The power company can charge an arm and a leg to run wires for electricity, in fact $10,000 per pole costs are not unheard of, so if your 2 miles from an electricity line BEWARE. Knowing if the land has access to utilities can raise or lower the value of the property.

7. Neighbours, Smells, and Sounds

Neighbors can make all the difference in the world. And at first, it may be difficult to get to know them. But if you are planning on building by neighbors as your residence you may want to study them and get to know them a bit before even considering purchasing land. Perhaps the neighbor may have a big shooting range, pig farm, horses, geese, ducks, barking dogs, loud engines running, or some type of illegal activity. Who knows? The point is certain that you think you will be comfortable with them. And the only way is to get to know them a bit. Go talk to them. For the most part, this isn’t a problem but in some cases, neighbors can make or break a deal.

8. Cell Service and Communication

We are living in a day and age in which being connected to a community network is extremely important. For most rural areas having access to high-speed internet is extremely limited and if they do have access (satellite internet) it usually comes with costly plans that limit your data. How or when this problem will be fixed is unknown but many residents are really concerned about having access to the Rural communicationsinternet for work and just the simple addition of being connected to the internet. Therefore, having a strong cell reception may help rural areas because of certain communication companies coming out with unlimited and highspeed cellular internet. The land may not have access to cable or a fiber line for internet use but having an alternative like cell service can make or break a deal. Believe me, people are starting to really consider having internet accessibility when purchasing their homes and they will turn down a bargain if there is no internet accessibility.

9. Zoning

Understanding what zoning the raw land is another critical point. First and foremost, it is vitally important to understand what a property can be used for, and what the highest and best use of the property is. With a simple phone call to your local planning department or looking up the BC assessment you can have the answer to this question in a matter of seconds. Once you know the zoning classification (e.g. – residential, mixed-use, commercial, industrial, agricultural, etc.), ask them to give you some examples of what type of property would be allowed under each of these particular zoning classifications. They may even give you some ideas that you hadn’t previously thought of. Once you understand the most ideal use of the property – you can quickly determine whether it will fit your needs (or the needs of those you intend to market the property to).There have been situations in which you may think you are getting a bargain deal paying pennies on the dollar for some raw land and finding out that the land is zoned as rural agricultural or even conservation land, in which, you are limited to what to do with it. And getting zones change can be very lengthy and even costly, sometimes taking several years to get them changed. Therefore, be sure to check with local authorities on what zoning ordinances and what you can build on the property before buying the land.

10. Natural Hazards

Find out if the land has known hazards. Perhaps the land has fire hazards. You may want to know if the local fire department has volunteer firefighters or supported firefighters and where they are located. How far from your property? Perhaps you may consider maintaining a private pond for fire emergencies.

11. What About Junk, Tires, Rubble, Oil, or Other Contaminants on the Property?

Imagine discovering what you thought was a piece of wonderful vacant land turned out to be a makeshift landfill. If you’re going to buy a piece of land, make sure that all you’re getting is LAND (and if anything else is coming along with the deal, make sure it’s something you actually want).

These kinds of messes can be very expensive to clean up, and as a way to avoid any unwanted surprises on this front, it’s always a good idea to actually see the property you’re purchasing.

So now we have looked at the issues what are the benefits?

Increase values of propertyIt Steadily Appreciates, Especially In Good Locations.

The great thing about land is there will always be a use for it. So, if you put some research into the area your land is based in, along with the types of usage it would suit – it could generate some future income.

For example, say you find a piece of land in an up and coming area. There are some developments close by, and the area is desirable. Buying a piece of land near such an area would be fantastic, especially if your main goal is seeing that land appreciate over time. A good location also comes down to your intended usage. It’s always worth checking out the types of businesses that operate in the area, along with typical asking prices before you buy. Buying the right piece of land at the right time is also key.

There are land investors who bought plots many years ago, who are now able to retire from the value, so it’s definitely worth researching.

Land Can Be A Great Source Of Passive Income

Passive income is money earned in the background of your other revenue streams. For example, a job would be considered an active income because you are paid to show up each day. However, passive income requires either a one-time or very little effort. Think of how bloggers or YouTubers created their content years ago, yet continue to earn money from it to this day…even while they sleep!

Landcan be a great source of passive income. There are many ways you can go about it too. Traditionally, you can buy land and let it appreciate to earn money without having to do anything. Alternatively, land could be used for something else that will generate you money. Whether you rent it to other businesses or create a tourist attraction on your land – the opportunities are plentiful. If you then go to sell the land at a later date, this in itself is passive income.

More Freedom With Your Investment

Some investment methods can be quite restrictive. For example, with the stock market you have the option to buy or sell. However, with land so long as you are following any local government policies – it’s yours to use as you wish. If you are using it for one purpose but find another would generate more income, so long as you seek the relevant permission (if required) you can change its usage. Equally, Diverse your investmentsif you want to sell some of it off and keep the rest it’s yours to do so.

It Diversifies Your Net Worth.

Investing in land is one of the best methods to diversify your net worth. You can build anything on the land (zoning allowed) you purchased. This can be a personal property or any commercial real estate. It can be owned or rented depending on your preference. Having a diverse investment portfolio is better for your overall financial security. After all, we are only just over a decade out of the last financial crash. Having different sources of income is a great way to help secure your future, regardless of what the markets are doing.

Is There A Guarantee Of A Good Return On Investment?

On the whole, investing in land (especially if it’s in a desirable location) is a solid investment. However, it’s important to stress that no investment strategy can be completely guaranteed.

Timing plays a huge part in this. Right now, your land might not be worth a lot. But, in a few years if the area begins to pick up that could change. The opposite scenario could also happen, whereby your land isn’t as valuable as it once was. The return on investment for any real estate can be tricky. As with any investment, you must do your research and keep your eye on the changing variables.

Be Aware of All Tax Implications

As with any purchase, you must fully clue yourself up on any tax implications. Avoiding property taxes would lead to serious criminal and financial implications, so taking the time to research this in advance is essential.

For example, imagine that you have purchased a piece of land that has a house on it. You renovated it and sold it at a higher profit. The Canada Revenue Agency will then step in. Unless more than 90% of the house’s interiors were altered (such as walls, ceiling, and floors), then the profit will be taxed as business income. Property flipping is not as easy as others make it look either. You must seek professional advice regarding the process.

In case your property is across the border, then it is recommended that you consult professional cross-border tax experts and advisors. They know the law of the land like the back of their hands. With this proper guidance, you can invest in any piece of land hassle-free.

Buying Overseas?

Many of us dream of owning a property overseas. While purchasing land abroad can make for an excellent investment, you must be mindful of fraud.

For example, there are instances whereby people have been promised that an investment is going to bear fruits, but eventually, nothing materialized. The deposit money is gone,  and all that’s left is a feeling of embarrassment and frustration. If you are considering buying vacant land overseas, you must seek legal advice. It’s also a good idea to visit the site and inspect it yourself. Also, be sure to brush up on the local laws and business practices of the country. These will all help you decide on a reasonable price, making sure that your vacant land investment is a smart one.

Finally, keep an eye on leases, especially any hidden expenses. It’s only once you’ve covered all bases that you can go ahead with your overseas investment.

Study What Is Possible

Some residents of Northern Canada have invested in multiple properties. While there are no rules in how much land or indeed how many properties one can invest in – it’s a good idea to make sure a financial return is possible.

Always remember that you must treat every real estate investment as a business. One factor that should never slip your mind is positive cash flow. High-priced market assets of Ontario and Vancouver may make it difficult to maintain positive and eternal cash flow. However, it is not impossible to get the balance right and make money from your investment. Many areas throughout these Provinces are developing rapidly.

ALWAYS SEEK PROFESSIONAL ADVICE REGARDING INVESTING IN OR BUYING PROPERTY

 

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