Investing in property or investing in land? Real estate investors often wonder which route will lead them to success.
It’s an understandable dilemma. While some real estate experts say that investing in property is the best way to invest money, others swear by investing in land.
So, which should a real estate investor choose?
If you weigh the pros and cons of investing in property against investing in land, you’ll come up with one definitive answer: nothing in the real estate investing world compares to the kind of success investing in property will bring you! Investing in land just doesn’t stack up against investing in property. Let’s take a look at why.
Investing in Land: Waiting for Success
The worst thing about investing in land? Having to wait for any kind of success, return on investment, or even the possibility of making money in real estate to arise. The number one reason real estate investors choose this kind of real estate investment is land appreciation. Unfortunately, real estate investors quickly learn that land appreciation happens at an unbelievably slow rate if it ever happens.
Besides the pain of waiting, a real estate investor can’t do much in terms of forcing land appreciation. Anything that can be done to force appreciation (like land development) is very expensive. A real estate investor could end up paying more than $300,000 when building a home. This price is in addition to a long list of building expenses on top of the initial price of investing in land. Buying investment property would be much cheaper even if a real estate investor plans on forcing appreciation.
Investing in Property: Controlling Success
It’s well-known that investing in property has the added benefit of property appreciation. Not only has investing in property historically proven to benefit real estate investors with an increase in investment property value and appreciation, but a real estate investor can control appreciation.
If a real estate investor repairs and renovates the investment property, there is immediate appreciation in the real estate market value. This allows the real estate investor to charge a higher rent as well as to ask for more in terms of the investment property price.
Be in control of the success of your real estate investment. Click here to get started investing in property today.
Investing in Land: Buy and Hold Real Estate Investing
As mentioned, investing in land gives a real estate investor one main option: buy and hold real estate investing. In order to ever really see a good return on investment, a real estate investor will have to implement the buy and hold real estate investing strategy.
Even then, there’s no guarantee that land appreciation would have covered any expenses that the buy and hold real estate strategy for investing in land can accumulate (property taxes, insurance, etc.).
Investing in Property: Variety of Property Investment Strategies
Investing in property gives a real estate investor so many options for property investment strategies. From buy and hold real estate investing, through flipping an investment property, to wholesaling real estate, the possibilities are endless when investing in property.
Still, the buy and hold real estate investing strategy is the best way to invest in real estate. It 100% tops the same strategy for investing in land. Why? It comes down to negative cash flow properties and positive cash flow properties.
Investing in Land: Negative Cash Flow Properties
Buy and hold real estate investing in land will leave you with negative cash flow properties. Investing in land comes with its own set of expenses: insurance, property taxes, and even upkeep of the land.
Because investing in land brings no kind of rental income or steady positive cash flow, what a real estate investor ends up with is negative cash flow properties. And to make matters worse, it’s likely that when land appreciation finally happens and you sell for a return on investment, it won’t be enough to cover the past expenses of investing in land.
Investing in Property: Positive Cash Flow Properties
Not only can a real estate investor find positive cash flow properties in the real estate market already, but it isn’t hard to create investment properties that provide positive cash flow. With the buy and hold real estate investing strategy, a real estate investor finds tenants to provide a monthly rental income for a steady cash flow. This cash flow can even become passive income with the right rental property investment strategies.
With enough time and work, a rental property can even start covering its own expenses. This is something a real estate investor investing in land is not likely to ever achieve.
Investing in Land: Difficult to Finance
Even the financing for investing in land is much harder to come by than when investing in property. Fewer mortgage lenders are willing to finance a land real estate investment simply for what the previously mentioned reasons add up to: a high-risk real estate investment.
The fact that investing in land means no positive cash flow and that land appreciation takes years to occur (if it ever does) leaves mortgage lenders wary of financing a land real estate investment. A mortgage lender that does agree will require a 20-50% down payment and higher monthly mortgage payments.
Investing in Property: Better Financing
Investment property financing is not as much of an issue as when investing in land. There are so many different options for investment property financing that even when you have poor credit and no money, there are still options for you when investing in property.
If a real estate investor is approved for investment property financing from a bank, the down payment can be much less (20-30%) as will the monthly mortgage payments be. Because more mortgage lenders are willing to finance investing in property, a real estate investor can shop around for better rates.
Investing in Land: Upkeep Required
An argument in favor of investing in land that you will often see is that it needs no upkeep or maintenance like an investment property or rental property. While the upkeep when investing in land may be less and cheaper, it still exists. Not only will you have to pay for it, but it won’t do much to help the appreciation of the land.
Investing in Property: Upkeep Required, But Adds Value!
Sure, the upkeep when investing in property is a lot and can be costly. But not only are there ways to cut down on your expenses, but everything you do adds value in appreciation to your investment property.
Investing in Land: Volatile
Another favorite argument is how much land has increased in value in the past. The problem here is that just as high as it has increased, land values have plummeted significantly as well. From 2000-2006, land values went up by 162% (in good locations) but soon after plummeted 46%. Land purchased around that time still needs to increase in value greatly to even come close to getting any kind of return on investment. This volatility can really hurt a land real estate investment.
Investing in Property: Not So Volatile
While the housing crisis is used in defense of why investing in land is so great and investing in property is not, the reality is that the real estate market is just not that volatile. Anyone who held onto their investment property during that dark time in the real estate market has seen a steady increase in property appreciation.
Is investing in land the worst option for a real estate investment in the world? No. Certain seasoned real estate investors with multiple cash flow properties who find land in a great place with the right zoning laws might succeed with investing in land. Still, it’s likely they would have to be investing in property to support the land real estate investment.
For the average real estate investor, however, investing in property is the best real estate investment option out there. Steady income, a great return on investment upon selling, and easier financing make it a prime choice for real estate investing.
Convinced? Then start investing in property with Mashvisor today. Find and analyze not only the location of investment properties but the return on investment using Mashvisor’s rental property calculator. Sign up right away.