Investing in land

16.05.2022

Investing in real estate is one of the surest ways to preserve capital and make a profit. Such investments are among the least risky. You can invest your money not only in the purchase of apartments, rooms, houses, but also in the purchase of land within the city or outside it.

Investing in land, can you make money?

Buying land as an investment allows you not only to save money, but also to receive additional income, the amount of which depends on the method of investment and the characteristics of the purchased land.

Investing in land is profitable:

  • there is less competition among investors than, for example, in the new buildings sector;
  • the land market does not "react" so strongly to economic crises and recovers faster after them;
  • land prices have been growing steadily over the last decades;
  • liquid plots are always in demand;
  • such objects are not subject to natural disasters.

Types of land investments

Like any other type of investment, investing in land can be active, passive and mixed.

Passive

Passive real estate investments involve investing money in land and then selling the land when the market value of the asset rises. Passive land investments also include buying land to rent it out. It is a virtually risk-free way of investing your money, but the profit may be less than that gained from active investing.

Active

Active investment usually includes changing the intended use of the land, its modernization, the construction of residential or commercial real estate, and other activities designed to increase the resulting profits.

Mixed

A blended investment strategy is a combination of passive and active investment techniques. This method can be used by beginner investors who do not have enough capital for active investments.

A sample plan of action of an investor following a mixed strategy:

  1. Purchase of a large plot of land.
  2. Partitioning into several small plots of land.
  3. Building a private house on one of the plots and selling it.
  4. Building on the funds received the rest of the plots and their sale.

What land to choose for investment

Land for investment will be profitable only if they are liquid. When choosing an investment asset you should pay attention to the following factors:

  • Legal clarity. The property must be "clean", not to have encumbrances, not to be in the lease. It is worth checking for the presence of foreclosures and shareholders.
  • What is the purpose of the site? The most in-demand land plots are those for individual housing construction. 
  • Location and prospects. Before buying, it is important to assess the proximity of infrastructure, transport accessibility, environmental conditions, the surrounding development and to learn about the future prospects of the community in which the land is purchased.

Ways to invest in land

There are several ways to invest in land. The most popular are:

  • Investing in land for resale - the easiest way, which is suitable even for beginner investors, the earnings when choosing a liquid property is, on average, 20-40%;
  • Investment in land for the construction of a house and the subsequent sale of the object - a medium-term method, requiring more money from the investor at the initial stage, necessary to create the project, the purchase of building materials and payment of workers;
  • Investments in land in order to build commercial real estate on it - a long-term investment option: most often the built building is leased, which allows you to receive a passive income over a long period of time.

Possible risks during the crisis

Investment in land, with the right approach to the choice of the object, is a risk-free investment. The crisis is the most favorable time to buy land: it is during the recession that real estate prices traditionally go down. Even if there is no significant decrease of land prices, it is profitable to buy land: its value is increasing steadily. Investments in land are much more profitable than a bank deposit since the increase in real estate prices "outpaces" the inflation rate.

Economic crises end sooner or later; this was shown by the growth of the land market in Europe after the global financial crisis in 2008.

Coronavirus pandemic in 2020 - no reason to postpone the purchase of land for the sale of the plot later, and to build: during the time of self-isolation in Spain has increased demand for private houses.

The main advantages of investing in land

Thus, land - the most reliable object of investment in real estate, which is not afraid of natural disasters, economic crises and loss of liquidity. The land market in Spain - one of the most stable, the cost per hundred square meters continues to grow steadily.