Although it may seem similar initially, buying and selling vacant land is quite different from buying or selling an existing residential home or commercial building. However, that is not to say vacant land can’t present a great investment opportunity. In many cases, if done correctly, it can be a lucrative endeavor.
Despite being steadier and less cyclical than the ‘regular’ real estate market, buying and selling vacant land can be challenging for the unprepared. It is critical to understand how to buy and sell vacant land before embarking on your investment journey. Let’s explore some of the key concepts to keep in mind when buying or selling a piece of land.
Is Buying and Selling Vacant Land A Good Investment?
People often get the impression that because vacant land sits idly by, without any paying tenants, it is not a good choice for producing cash flow. The truth is that certain vacant land can be great at producing hefty returns while minimizing ongoing expenses on the maintenance side. For a thorough look at vacant land’s potential as an investment, we will weigh some of the pros and cons.
Pros of Buying and Selling Vacant Land
Let’s start with analyzing the positives of vacant land investment.
Solid ROI
Investors are always looking to diversify their portfolios, finding creative ways to maximize growth. Buying and selling vacant land can be a dependable way to achieve a healthy return on investment. It just takes the right timing and know-how to execute a successful transaction.
First, it is critical to assess the quality of the land you are looking at. One of the keys to ensuring a good return on investment is purchasing raw land in areas where there is high demand and potential growth.
It is critical to survey the land, identify potential risks, and analyze the surrounding market. If you cannot complete this process yourself, you will want to hire a third-party consulting firm to help evaluate the property. It is also important to remember that timing is critical for capturing a good return on investment.
Low Initial Cost
Often, purchasing raw, undeveloped, or otherwise vacant land requires low upfront costs. Unless you aim to buy vacant land in an already-developed or particularly in-demand area, you may not need to acquire the capital that residential or commercial real estate requires.
Lower upfront costs mean that many vacant landowners can make their initial investment in a property without securing outside financing. A lower upfront cost can lead to greater returns and minimize potential losses.
Little Maintenance
Many of the risks associated with purchasing real estate comes from maintenance costs. Homes and commercial properties deteriorate as they are exposed to the elements and tenants, which means real estate investors must continue to reinvest capital into their properties to sell or rent the buildings. However, with vacant land, investors do not have those additional maintenance costs.
Aside from some possible land upkeep, which is dependent on the type of parcel, there is little maintenance that needs to be performed, thus lowering costs and maximizing return associated with the investment.
Big Opportunities
The possibility of making significant financial gains from the buying and selling of vacant land can make it a great opportunity. Investors can create a chance of turning a profit from purchasing a valuable plot of land. It just takes research, patience, and the ability to evaluate properties. Whether you are an experienced landowner or someone just getting started, there is an immense opportunity for those who want to buy and sell vacant land.
Cons of Buying and Selling Vacant Land
Despite many positives to land transactions, there are a few drawbacks that you will need to consider before completing a purchase. It is highly recommended to consult with a local Wisconsin real estate lawyer before entering into a vacant land transaction.
Fewer Tax Advantages
One of the benefits of buying a home or commercial building is the tax breaks available for owners. Tax incentives like basic deductions, depreciation, and tax credits can help shield income for property owners. Unfortunately, these benefits do not often extend to vacant land properties. A real estate lawyer can help you identify the practical benefits of a parcel of land that you are interested in purchasing.
Difficulty in Financing
If you are unable to purchase vacant land outright, you will need to secure financing. Home mortgages are one of the most common loans for people to take on, but buying vacant land requires different financing. The financing is generally more difficult to obtain than a traditional mortgage for a residential or commercial property. Lenders require many processes, such as surveying and zoning approval to be completed before the loan can be approved.
Delayed ROI
Unlike flipping a home, buying and selling vacant land can take more time to realize the return on your investment. You may be waiting for factors outside of your control, such as the surrounding area to turn into viable commercial or residential developments before you are able to make a significant return on your investment.
Vacant land is an illiquid asset. The market for buyers is much smaller for vacant land than for residential homes. You may need to hold onto your property for decades to see the ROI you are looking for.
Permits and Approvals Required
If you intend to develop on the land, you will need to obtain several permits and may need to tap into public amenities such as sewer services, water lines, and the electrical grid. You may need zoning permits, building permits and depending on your property location, you may need to subdivide the land.
Do I Need a Real Estate Lawyer for the Purchase?
While you are not required to have a lawyer to buy or sell vacant land in Wisconsin, it may be a good idea to have one to help you wade through potential issues that may arise. Real estate lawyers can help you through every step of the transaction. Much like with other real estate purchases, lawyers can ensure the process runs smoothly. This can range from filing the proper paperwork to appearing in front of zoning boards.
A Lawyer’s Advice on How to Buy Vacant Land in Wisconsin
After you’ve hired legal representation to assist in the process, there are some steps to take to make sure your vacant land investment goes as intended. Here are some things to keep in mind when buying or selling land.
Identify Your Goals
Like any other big decision, it is critical to identify your goals before going into a vacant land transaction. You must ask yourself what you’re trying to get out of buying or selling vacant land.
Are you trying to create a passive source of income? Are you trying to parlay the investment into further real estate transactions? Are you looking for a place to build your dream home?
The answer to these questions will help you define which parcel of land is the right fit for you, the timeline you want to hold onto it for, and other important decisions.
Assess Your Financial Situation
Your financial standing is one of the most important things to evaluate when deciding if vacant land investments are a good idea for you. Do you have the personal capital for the purchase? Or will you need to secure outside financing?
Additionally, it would be best to gauge whether you can afford a less than perfect transaction on your land. As explained above, sometimes it can take quite a while for investors to see their ROI on vacant land purchases, and it may be challenging to sell the property quickly.
Find Your Ideal Piece of Land
Before making a purchase, you must identify your ideal piece of land. Do you want undeveloped property in a remote location? Or maybe you want to find an empty lot in a developing neighborhood that you can use to build a home on. Your ideal piece of land will guide you toward making the right purchase, whether a raw, vacant, or an undeveloped parcel.
What is Raw Land in Wisconsin?
Raw land, simply put, is land in its most undisturbed state. It is a piece of property that has not been improved or developed in any way. Often previously ignored, raw land is quickly becoming a popular choice for investors due to its typically low cost and higher upside.
Be Prepared to Wait
Securing the return on your vacant land investment doesn’t happen overnight. Often, it takes months, years, or even decades to reap the rewards of your purchase. Waiting for other activity to drive up the price of your property is vital. Buyers too often sell their land before it has reached its desired value. Prematurely selling can substantially undercut the profitability of your investment. Land purchases can, and should, be viewed as a long-term investment to help round out a comprehensive portfolio.
Pick the Right Price
As with any investment, it’s crucial to set a predetermined price point based on your perception of the value of that vacant land. Then, wait until the property reaches that threshold before completing the transaction.
Staging Can Help Sell Vacant Land
When you’re ready to sell, make sure you make the property look as presentable as possible. Staging a property isn’t just for residential sales. It can also help sell your vacant land after you have decided to put it on the market. Remove unwanted debris, clear downed tree branches, remove the trash, and cut back undergrowth. Not only can proper upkeep entice a sale, but it can also increase the value of the property.
Finance the Land Sale
Financing a vacant land sale is another dependable way for sellers to attract more buyers to their property. While it is uncommon in the residential real estate market, seller-financed land sales can benefit both parties involved in the transaction.
Buyers who have trouble qualifying for traditional financing can purchase properties through owner-financed sales, and sellers can typically get a higher interest rate since the seller is the one arranging the terms of the financing. It can often be a mutually beneficial relationship, and one sellers should consider, especially if their property is having difficulty selling. This type of seller-financing is a complex process that should not be attempted without an experienced real estate lawyer involved.
How a Real Estate Lawyer Can Help You with Vacant Land Purchases
If you’ve decided that a Wisconsin vacant land purchase is right for you, a real estate lawyer will be a valuable member of your team to ensure that things go smoothly. Here is how a real estate lawyer can help you with vacant land purchases.
Protection From Fraud
Unfortunately, fraudulent transactions in the vacant land market occur more often than one might think. Sellers can attempt to offload property that is unusable due to hazardous materials on-site, easement issues, or judgments that have been placed on the parcel. By hiring a real estate lawyer for your vacant land purchases, you can stop these situations before they occur, which will save you time and money in legal fees.
Things to Know Before Buying and Selling Vacant Land
Real estate lawyers have a wealth of knowledge about properties and will assist you with any pre-sale contingencies along with reviewing the title to make sure it is clear. They can help you prepare for your purchase by identifying what to look out for on the parcel such as easements, encroachments and liens on the title. A real estate attorney will also help you after you have purchased the land with obtaining permits, variances, zoning changes or lot line adjustments.
Get a Wisconsin Vacant Land Legal Consultation
If you are looking into purchasing vacant land or any other type of property in Wisconsin, it is highly recommended to consult with a local real estate lawyer. To prepare for the ins and outs of your vacant land transaction, reach out to Wynn at Law, LLC for a real estate law consultation today! Wynn at Law, LLC has three convenient law office locations throughout Southeastern Wisconsin covering vacant land transactions in:
