If you are considering land for commercial use as part of your real estate investing approach, you’re on the right track.
Generally speaking, land (such as vacant lots and raw land for development) is an attractive investment. By developing a plot of land for commercial use, smart investors set themselves up with an appreciating asset that can serve as a long-lasting revenue stream. And if they have experience owning rental properties, the prospect of not dealing with structural repairs and managing tenants seems especially appealing.
Like many unfamiliar investments, the process of buying land can seem daunting. I know new investors can be put off by the apparent complexities, so let’s demystify the process.
For starters, you should be able to answer four key questions about the potential investment in land: why, where, how, and who.
The Why: End Use Dictates Location
When you are buying a home, location is everything. You look at the neighborhood, the schools, the nearby services. You wouldn’t think of moving your family into a new home that didn’t tick off most of your required boxes, would you?
You may think purchasing land for development or commercial use isn’t the same; however, location should always be one of the biggest factors in your land-buying decision, as well.
Just because you aren’t going to live there doesn’t mean you shouldn’t get a feel for the area. One of the biggest mistakes you could make is to simply evaluate the property without evaluating the surrounding area.
What do you plan to build on the land? Even if you plan to use the property as a long-term investment, location still matters. For example, building a flashy shopping complex in a run-down suburb might not be smart. Or if you intend to sell to a retail developer in a few years, they won’t be excited to buy if a competitor has already set up shop nearby.
Remember, the property itself can always be changed and improved. But improving the neighborhood and surrounding area is a completely different story! It is vital to keep in mind that you aren’t simply buying property, you are buying the location, too.
Here are a few things to consider:
Business climate: Look at the surrounding businesses in the area. Is there a large number of competitors? Are the surrounding businesses showing healthy revenue?
Economic climate: Is the area depressed? How likely is the location to attract other investors?
Logistics: Amateurs talk about plans, experts talk logistics. Before putting their hard-earned capital into property, investors should think about a few things. How easy is it to get to the location? Can water, sewer, and other utilities be set up? These considerations must be taken into account in line with the purpose of the property, as well.
Once you’ve identified a potential property, be sure to ask a commercial real estate broker about the downside and benefits of your desired location.
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