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3 tips for sellers considering costly driveway repair

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REThink Real Estate
BY TARA-NICHOLLE NELSON

1. Get local, expert input on how buyers will view the cracks. If homes move quickly in your market due to high demand and premium location, it’s entirely possible that your driveway’s cosmetic cracks — assuming they truly are cosmetic, and the driveway is sound — might have little or no impact on getting it sold. However, it’s also possible that a buyer might see very major or deep cracks and assume they are more than cosmetic, making someone who would otherwise make an offer hesitate and/or guess at repair or replacement costs and factor that into his offer price.

Also, a local broker or agent can give you their opinion on whether the cracks are so severe that a buyer’s appraiser is likely to call them out as a health and safety hazard (some concrete cracks in areas of high foot traffic can be deemed a “trip” hazard).

Look around at the other homes on the market in your area and the state of their driveways to get a sense for how yours will come off to a prospective buyer. I would urge you to contact several listing agents in your area and ask them for their input; they know what buyers in your area care about, and can also just take a look at your driveway and see how “noticeable” the cracks will be to a prospective buyer.

2. Don’t expect a huge ROI — or any at all. That said, if you do end up deciding to replace the driveway, don’t expect to get some weighty return on your investment (ROI), like that your home will sell for $10,000 more than the neighbor’s. For the most part, these sorts of things are considered more maintenance than home improvement. For your purposes, that doesn’t mean you shouldn’t do it, it simply means that if you do it, consider what you spend an investment in getting the place sold — period.

3. Rethink your inputs and assumptions. Will it really cost $10,000 to fix your driveway? Consider getting some actual contractor bids. And are you sure that it’s beyond being professionally resurfaced, as opposed to entirely replaced? I understand that there may be epoxies and overlays that may cost less than a total replacement.

Overall, as you take on the project of preparing your home for resale, I would strongly encourage you to get friends and family members to refer you to a

Also, a local broker or agent can give you their opinion on whether the cracks are so severe that a buyer’s appraiser is likely to call them out as a health and safety hazard (some concrete cracks in areas of high foot traffic can be deemed a “trip” hazard).

Look around at the other homes on the market in your area and the state of their driveways to get a sense for how yours will come off to a prospective buyer. I would urge you to contact several listing agents in your area and ask them for their input; they know what buyers in your area care about, and can also just take a look at your driveway and see how “noticeable” the cracks will be to a prospective buyer.

2. Don’t expect a huge ROI — or any at all. That said, if you do end up deciding to replace the driveway, don’t expect to get some weighty return on your investment (ROI), like that your home will sell for $10,000 more than the neighbor’s. For the most part, these sorts of things are considered more maintenance than home improvement. For your purposes, that doesn’t mean you shouldn’t do it, it simply means that if you do it, consider what you spend an investment in getting the place sold — period.

If every other home in the area has a crack-free driveway and yours appears to be crumbling to pieces, whatever you do to repair or replace it will simply bring your home up to the standard of the competition; in fact, if you decide against repairing it, you should not be surprised to see buyers look for a discount based on the condition (again, assuming these cracks really are that noticeable).

3. Rethink your inputs and assumptions. Will it really cost $10,000 to fix your driveway? Consider getting some actual contractor bids. And are you sure that it’s beyond being professionally resurfaced, as opposed to entirely replaced? I understand that there may be epoxies and overlays that may cost less than a total replacement.

Overall, as you take on the project of preparing your home for resale, I would strongly encourage you to get friends and family members to refer you to a local agent you can trust, and meet with a couple of these experts for their recommendations and advice on which things do and do not belong on your to-do list. Also, local brokers and agents can be great sources for contractors they work with on a repeat basis to get homes ready for resale.

 

 

6 Reasons Why Selling a House in the Winter May Be the Best Decision Ever

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The #1 Reason to List Your House in the Winter

Spring is generally the most popular time of year to sell a house, with hordes of buyers looking to move into a new place before the school year begins. But if you decide to sell your home during the winter, experts say you could reap a reward in cold, hard cash.

“I have personally had my best months in real estate during the holiday season, so the idea that the markets are very tough to sell in the winter might be a myth,” says Emil Hartoonian, managing partner of The Agency in Beverly Hills, CA.

He’s not the only one who believes selling in the winter can make you a real estate winner. Read on for the top reasons why you should consider unloading when the temperatures drop.

6 Reasons to sell your home in the winter

1. Low inventory = less competition

Since spring is the most popular home-selling season, the housing market is ultracrowded with options at that time of year. And if you paid attention during Econ 101, you understand the law of supply and demand.

“Most sellers still think they need to sell in the spring, but that means there is more competition for buyers’ attention,” says Matt Van Winkle, founder of Re/Max Northwest in Seattle.

But in the winter, there are fewer homes for sale. That competition over low inventory can make winter an ideal time to sell your home.

“In the Atlanta market, January is one of the strongest months for homes to go under contract,” says Ally May of Atlanta Fine Homes Sotheby’s.

2. You get to show your home’s winter-readiness

Selling in the winter also gives you the opportunity to show that a home is designed to handle the harsh elements.

“Sellers in places like Lake Tahoe can show off features like a south-facing driveway to speed up snow melting, how snow will fall off of a roof, a short driveway that will minimize shoveling or plowing, heat tape on the north side of the roof to avoid snow accumulation, and how recently the roof and furnace have been replaced,” says Sandy Soli, regional manager at Engel & Völkers in Lake Tahoe, NV.

Plus, during winter months, homes with features like fireplaces and hot tubs are certainly more appealing.

3. New parents may be looking to upgrade

The baby boom in September may lead to more buyers later in the year. According to data from the Center for Health Statistics and the Social Security Administration, there are more birthdays in the month of September than any other time of the year. Therefore, there’s likely to be a crop of growing families looking to buy a larger house.

“Once baby is home and settled, these parents may want to start the year in a new, and more spacious, family home,” according to Melissa Temple, real estate adviser and partner at Engel & Völkers in Aspen, CO.

4. Winter brings out the serious buyers

News flash: Not everyone looking at houses intends to make a purchase. Some people are contemplating moving and may just want to see what’s on the market. Since more homes tend to go on the market in spring and fall, this is also when window shoppers are likely to be out looking.

However, these looky-loos tend to be scarce during winter months, according to Jennifer Baldinger, licensed associate real estate broker at Julia B. Fee Sotheby’s International Realty in Scarsdale, NY.

“When I have buyers looking for homes in January and February, they’re real buyers looking to make a purchase—especially if it’s a great house. They don’t want to take the chance of waiting until spring and losing out on the home,” Baldinger says.

“There may be less people at these open houses, but I would rather have 10 real buyers come through than 20 people who are just curious,” she says.

5. Year-end financial bonuses and payouts

As a seller, year-end performance reviews could mean that more people have money to spend on a home.

“End-of-year financial bonuses or workers retiring with large payouts could mean opportunities for these buyers to upgrade their living situations or for first-time buyers to enter the housing market,” according to Temple.

6. Corporate relocation

You could also encounter buyers who are relocating for a job.

“One of the biggest months for corporate relocation is January/February, so those buyers, who need to move quickly, are out in full force looking for new homes,” Baldinger says.

Relocators typically have a limited amount of time to uproot their families and, as a result, don’t have the luxury of spending a lot of time looking at properties. The kids need to get settled into school, and dealing with selling their old home can add another level of urgency and stress. So it’s likely that once they find a home that meets their requirements, these buyers will be ready to sign on the dotted line.

What You Need to Know About Insulation When Selling Your Home

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Insulation At A Glance

How does your home insulation impact the sale of your home? You might not realize it, but it can make a big difference. Attic insulation is one of the best improvements you can make, and everyone loves a well-insulated home. Here’s what you need to know!

As you get your home ready to sell, you’re probably encountering a variety of considerations that you didn’t think would be part of the sale. After all, can’t you just list the home, sell it, pack up, move out, and be done?

While that is the majority of the process, there are a lot of details to think about before you list the home. One of the most important is making sure it’s in great shape and that a buyer will find no problems during an inspection.

You also want to make repairs and improvements that will help you get more value for your home. One of the best improvements you can make is to boost your insulation.

Here’s what you need to know about the impact insulation can have on your home sale!

Are There Problems With Insulation?

Take a look at your attic and crawlspace and see if you can find obvious problems with your insulation. Is there mold, signs of pests making nests in it, or has the insulation drifted and is no longer evenly spread out?

If so, take steps to repair the damage. Not all states require you to disclose problems with the insulation in the home, but even if you aren’t legally required the right thing to do is to get it in working order before your sale.

That doesn’t mean you have to get the most expensive insulation available, although doing so can have a great return on investment.

If you’ve had a pest inspection and removed all pests, or have thoroughly checked for moisture and found nothing, make that a part of the marketing of the home. A buyer will love the comfort of knowing there’s no rats or mold in the attic.

Insulation Improvements Can Add Significant Value

Wondering if it’s worth your time to add insulation to your home? It is, especially in the attic. An improvement in attic insulation alone can get you almost 108% back on your investment.

If you have to repair your home insulation due to pests or mold, spin that in your favor. Be sure the realtor markets your home as having “all-new insulation” in the attic or crawlspace.

If you really want to get bang for your buck, consider replacing your existing insulation with spray foam, a high-quality product that keeps out moisture, pests, and significantly improves energy efficiency. Making that a selling point can get you a much higher sales price.

Whether you want to insulate beyond your attic and crawlspace is up to you. An insulation contractor can certainly blow additional insulation into walls without major construction, and it will lower energy bills for the future buyer. However, you want to make sure you’ll get a good return.

This is one reason it’s so important to work with an experienced local realtor. They will know what improvements will matter most in your specific area. If you live in an area with harsh winters or very hot summers, the insulation may sell well. On the other hand, in a temperate area, you might want to just stick with the attic.

What if There’s No Insulation in the Walls?

Some very old homes — such as those over 100 years old — were built at a time when houses were not routinely insulated. If this is the case in your home and you haven’t made any updates, you’re probably struggling with high energy costs and cold (or hot) spots throughout the house.

You don’t have an obligation to insulate the walls in an older home, nor do you have to disclose the lack of insulation in most states. Most buyers of older homes are aware of the various charms and pitfalls of owning this type of property.

However, that doesn’t mean that adding insulation has no value. If you can do it — especially since an older home might not have fire blocks in the framing so filling the walls might be easy — you can add a lot of value to the property.

Selling a quaint old home that isn’t drafty and expensive to heat and cool is a big deal, and you’ll certainly see the added value in the sale price.

 

Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

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Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

Image result for did you know? even if you previously owned a home you still qualify for first time home buyer

If you are shopping for a mortgage, you have probably seen all sorts of offers and advertisements aimed at first-time home buyers and wondered if these are really as good as they sound. In some cases, “first-time” programs are little more than attention-getting marketing messages from lenders, while in others they are actual assistance programs for people who may otherwise face challenges qualifying for a home mortgage or finding a home loan at an affordable interest rate. With this in mind, it is important to understand the difference between mortgage lender marketing programs, actual loan programs, and financial assistance programs.

You can be a first-time home buyer more than once

First of all, even if you have previously owned a home, you (or your spouse) may still qualify as a first-time home buyer. According to the U.S. Department of Housing and Urban Development, first-time home buyer status is not limited to people who have never owned a home before (although that criterion obviously applies). For lending purposes, a first-time home buyer includes anyone who fits one or more of these conditions:

  • An individual or a spouse who has not owned a primary residence for at least three years. This means married couples may qualify as first-time buyers even if only one of them meets this test.

  • A single parent who previously only owned a home with a spouse while they were married.
  • Someone who has only owned a primary residence that was not attached to a permanent foundation (e.g., a mobile home) in accordance with applicable regulations.
  • Displaced homemakers whose only previous ownership was with a spouse.
  • Someone who only owned property that was not in compliance with local building code ordinances and which cannot be improved to meet building code standards for less than the cost of constructing a new residence.

Types of programs

First-time home buyer programs can be broadly categorized as either loan programs or financial assistance programs. Both types of programs can be helpful to first-time home buyers. Loan programs, such as those backed by the Federal Housing Administration (FHA), are available to all borrowers through various commercial lenders, but they have features that may be particularly attractive to first-time buyers with lower credit scores or little in the way of cash savings. Private lenders may also offer attractive loan rates and terms for first-time home buyers with good credit and the ability to make larger down payments on a home purchase. Financial support programs for home buyers typically come from state and local government entities, although the federal government sometimes steps in to provide additional assistance during difficult economic times.

Loan programs

Mortgage loans are made by commercial lenders, such as banks, credit unions, or mortgage companies. These loans may be guaranteed by various organizations, to protect lenders against borrower defaults and also to make loans more affordable for borrowers.

  • FHA. The Federal Housing Administration does not make loans, although they do insure loans made by commercial lenders to protect lenders if borrowers default on loan payments. FHA loans are available to all qualified buyers, and they can be particularly attractive to first-time home buyers because the qualifications are easier. For example, a potential home buyer with a credit score of at least 580 may qualify for an FHA loan with as little as 3.5% of the purchase price for a down payment. Lower credit scores between 500 and 579 may also qualify with a larger down payment of 10%, though the interest rate on the mortgage loan will be higher.
  • VA. The Veteran’s Administration (VA) also guarantees portions of home loans provided by private banks or mortgage companies to active duty service members, veterans, and eligible surviving spouses. A home purchase loan guaranteed by the VA can help military vets and spouses purchase homes at competitive interest rates without the need to also make a down payment or purchase private mortgage insurance. Applicants must have satisfactory credit scores, along with sufficient income to meet expected monthly loan payments.
  • USDA Single Family Housing Guaranteed Loan Program. Similar to loan programs provided by FHA and VA, the United States Department of Agriculture (USDA) also provides loan guarantees to mortgage lenders so they can help borrowers with low and moderate incomes purchase homes in rural areas. The USDA program guarantees 90% of mortgage loan amounts for approved lenders to help offset the risk of offering 100% loans to eligible rural home buyers.
  • Freddie Mac Home Possible® Mortgages. The Federal Home Loan Mortgage Corporation (also known as “Freddie Mac”) makes it possible for lenders to offer home loans to buyers with down payments as small as 3% through the Home Possible® Although this program is not limited to first-time home buyers, first-timers must first participate in a borrower education program.

Home Buying Financial Assistance

Financial assistance programs exist across all levels of government: city, state, and federal. These programs may provide assistance with funds for down payments, closing costs, or other expenses tied to the home purchase process.

  • Fannie Mae’s HomePath Ready Buyer Program. In 2015 the Federal National Mortgage Association (FNMA or “Fannie Mae”) launched the HomePath Ready Buyer program, which provides first-time home buyers up to 3% of the home’s purchase price in the form of a rebate to assist with closing costs. Participants must complete an online home buyer education course in order to receive the 3% rebate.
  • State-by-state home buyer programs. Many individual states sponsor a variety of home buyer programs designed to help first-time home buyers and others qualify for home mortgages. Visit your state’s housing website to find details for your area. For example, first-time home buyers with low or moderate incomes are eligible for the Texas Mortgage Credit Certificate Program as a way to convert mortgage interest into a federal income tax credit. New York state home buyers can take advantage of the Conventional Plus Program for down-payment assistance up to 3% of the home’s purchase price.
  • City & county home buyer programs. Individual cities and municipalities can also offer assistance with home financing. For example, Miami/Dade County in Florida makes home financing assistance available to first-time home buyers through a loan program facilitated between Miami-Dade County Public Housing and Community Development and local mortgage lenders. Similarly, the Mayor’s Office of Housing and Community Development in San Francisco provides loan assistance programs for first-time home buyers. Consult with your city or county government offices for availability of similar programs.

As you review and evaluate the financial assistance or loan programs that may be a good fit for you, it is also a good idea to take inventory of your personal financial situation, such as checking your credit report (www.annualcreditreport.com), paying off credit cards and personal loans, and stashing more cash into your emergency fund. These tips and more are also available in this article: 5 Steps to Buying a Home.

What is a Home Equity Line of Credit (HELOC)?

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What is a Home Equity Line of Credit (HELOC)?

heloc

If you’re a homeowner and have a large expense coming up, you may have heard of a home equity line of credit—also referred to as a HELOC—as a potential solution. A HELOC can be a great way to get a loan, and often has a lower interest rate than you’d pay otherwise. But what is a home equity line of credit, and how does it work? Below, we’ll go over all of the basics that you need to know about home equity line of credits, including what they are, how they function, and what you need to do to apply.

What is a Home Equity Line of Credit?

A home equity line of credit is a loan that you take out using the equity you own in your home as collateral. The more equity that you have in your home, the more that you can borrow.

Most homeowners who use a home equity line of credit do so only for very large expenses, such as home renovations, new cars, and university tuition fees. Many also consolidate existing loans into a HELOC in order to take advantage of lower interest rates.

Perhaps the easiest way to understand a home equity line of credit is to equate it to a credit card. You borrow from the equity in your home, withdrawing funds as you need to, as opposed to taking one lump sum payment. These funds can be accessed whenever you need them (for example, if you have unanticipated travel expenses or medical bills that you need to cover), though they can not exceed the amount of equity you currently own.

HELOC vs. Conventional Loan

There are a couple of differentiating factors between a home equity line of credit and a conventional loan.

For starters, a HELOC generally has variable interest rates, which means the interest rate can “float” (i.e. change) over the course of the loan period. With a conventional loan, you almost always lock in at an interest rate that doesn’t fluctuate during the loan’s term. It’s worth noting however that some lenders will offer fixed interest rates on a HELOC, so if you’re interested in that you can certainly inquire.

Another difference is that a home equity line of credit often has lower interest rates. Because you already have the equity available, a HELOC is considered a less risky investment for lenders, which in turn allows them to offer lower interest rates than you might get with a conventional loan.

The third major difference between a home equity line of credit and a conventional loan is the payout. As mentioned above, a HELOC functions similar to a credit card, with a set limit that you can borrow up to. This is different from a conventional loan, where you borrow a pre-determined amount all in one lump sum. So if you have $100,000 in equity on your home, you can borrow up to that amount. That means you can borrow $4,000 for a vacation, $20,000 for a new car, $30,000 for home improvements, and so on, with the cap being the amount of your home you actually own.

Note that with a HELOC, you only pay interest on the amount that you borrow—not the potential amount that you could borrow. So if you take $20,000 of your $100,000 in equity for a new car, you’ll only pay interest on that $20,000.

HELOC Repayment

There are two major time constraints on a home equity line of credit: the draw period and the repayment period. Together, most HELOC repayment periods last about 30 years—10 years for the draw period and 20 years for the repayment period.

The draw period is when your HELOC is active, meaning that you can borrow against your equity any time during this period, which generally lasts 10 years. During the draw period, you only have to pay interest on the loan and are not required to contribute to principal.

The repayment period starts after the draw period has ended and is usually about 20 years. At this point, you would have to take out another HELOC if you wanted to borrow from your equity. You’ll also have to start making both interest and principal payments toward the loan. Remember that most home equity lines of credit have variable interest rates, so the interest rate you were given when you originally withdrew the loan may not be the interest rate you have when you begin the repayment period.

How to Apply for a Home Equity Line of Credit

You can apply for a home equity line of credit much like you would apply for a second mortgage. In order to determine whether your qualify for a HELOC and what your borrowing limit and initial interest rate will be, a lender will look at a number of factors, including:

    • How much equity you currently have in your home
    • Your income
    • Your debt-to-income ratio
    • Your credit score

A lender will also want to know your employment status and history, as well as have an appraisal conducted on your home. Generally, you’ll know whether you’ve been accepted for the loan after the lender has verified your income and completed the appraisal.

What if You Sell Your Home?

A common question that homeowners have in regards to HELOCs is “what happens if I sell?” The answer is that you’ll have to pay off your home equity line of credit when you sell your home, even if you’re still in the draw or repayment period.

Most of the time, you should have no trouble paying back your HELOC, since you’ll be selling your home for more than you owe (in turn leaving you with money left over to pay the loan back).

However, complications do arise if you’re underwater on the sale. If that’s the case, you will still have to repay your home equity line of credit, but you’ll have to find another way to secure the funds. You can do so through savings, or you may have to initiate a short sale with your lender.

Is a Home Equity Line of Credit a Good Idea for You?

A HELOC is considered to be one of the best ways for homeowners to secure a loan for large purchases. To figure out if it’s the right move for you, take a few factors into account:

    • How much equity you currently own in your home
    • How long you intend to stay in your home
    • What type of expense you’re looking to secure the loan for

A home equity line of credit is usually used for large purchases, as opposed to day-to-day spending. Think of it like a rainy day fund that you can tap into when savings just won’t cut it. Keep in mind though that you’re better off establishing a fair amount of equity before taking out a HELOC, since you don’t want to cap your borrowing limit too low.

Note that you will have closing costs associated with your home equity line of credit that you’ll need to budget for. These include your application and processing fees (usually $100+, though many lenders refund this amount if your application is denied), an appraisal fee (about $150 to $250), an origination fee (about 1% of the amount you’re borrowing), and attorney’s fees (since you won’t want to go about the process alone).

As with all loans, never take out more than you can afford. Any line of credit can be a slippery slope if you don’t have the means to pay it off over time, and a home equity line of credit is no different. Evaluate all your options and be sure to look over your loan amortization schedule to ensure you can handle payments with your current income.

Raw Land Investing With Confidence: Everything You Need To Know

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Raw Land Investing With Confidence: Everything You Need To Know

With the right knowledge and experience at their disposal, raw land investing can be highly lucrative for real estate investors. At the very least, those interested in buying land are only limited by their imagination and zoning regulations. The key to successful raw land investing is a unique combination of due diligence, hard work and attractive profit margins. Continue reading if you are interested in investing in land with more confidence.

What Is Raw Land?

Raw land is a plot of land that has not been developed or prepared for construction; it’s completely untouched terrain. Despite an inherent lack of grading and subdividing for construction, however, raw land investing is becoming increasingly popular among real estate investors. This begs the question: Is buying land a good investment for everyone? Not surprisingly, the answer is completely dependent on what an investor may want out of a respective deal.

For some, raw land investing may sound counterintuitive. Likewise, investing in land should be reserved for those with more patience and a penchant for long-term strategies. Consequently, there are also several reasons someone may want to buy raw land. Specifically, investing in land represents a blank canvas for those with the foresight to do so properly—raw land may be developed into whatever the investor sees fit. Perhaps even more importantly, investing in raw land has become synonymous with persistent cash flow and appreciation.

[ What’s the best investment strategy for YOU? Take “The 10-Minute Real Estate Investor Personality Test” and find out ]

investing in land

Does Land Appreciate?

Raw land is categorically and objectively an appreciating asset for two simple reasons: limited supply and increasing demand. There is a finite amount of available land that has yet to be built upon, making it a very attractive commodity in a world where the population is increasing exponentially. Therefore, in accordance with the most basic economic principle (supply and demand), raw land will inherently increase in value as demand grows for the limited asset. It is no longer a question of whether or not land appreciates, but rather how much it will appreciate.

How Many Years Can You Finance Land?

The amount of time a traditional lender will allow borrowers to finance a land investment will vary. There are several variables that will determine the loan duration one may expect to receive for raw land, not the least of which includes the plot’s location and its use. For example, lenders are more willing to extend their loan durations for plots of land that exhibit a degree of intrinsic value. If for nothing else, a promising plot of land represents a less-risky investment on the bank’s behalf. That said, those investing in land shouldn’t expect considerably long loan terms. Buying raw land typically coincides with short, restrictive payment terms. While some raw land investors may be able to increase the length of their loan, most terms will be limited to about 10 years or less.

What State Has The Cheapest Land Per Acre?

Not unlike every real estate exit strategy know to today’s investors, investing in land coincides with an inherent degree of risk. Raw land investing for future gains is far from a guarantee, but that doesn’t mean it’s impossible. The trick is to find relatively inexpensive plots of land with plenty of potential for future prospects. For those of you thinking about buying raw land with the intentions of making a profit in the future, here’s a list of five states where raw land prices remain affordable compared to their future potential:

  • Tennessee

  • Arkansas

  • West Virginia

  • New Mexico

  • Arizona

6 Benefits Of Raw Land Investing

It goes without saying, but there are always risks and rewards associated with any type of investment deal, whether it involves raw land or not. The key, however, is understanding your exit strategy, weighing your options, and making the appropriate decision based on your desired results. That said, research will ultimately define your success with a raw land investment. The current conditions of the market, demand for housing, mortgage rates, the local economy, and new housing construction will all play a critical role in how you benefit from your raw land investment.

For investors, the advantages associated with a raw land investment include:

  • Easy to acquire

  • Little-to-no competition

  • Low cost to own and maintain

  • Potential for quick profit

  • Flexibility to build or hold

  • Potential for passive income

Although the benefits of raw land investing are far and wide, they won’t be achieved without due diligence on the investor’s behalf. As part of your due diligence, running the numbers will serve to not only determine if you can afford the land, but if it’s actually financially viable. The numbers never lie, and in this case, they will almost always forecast whether your raw land investment is worth it or not.

Land Investment Tips: How To Invest In Land And Profit

Now that we understand the potential benefits of a raw land investment, it’s time to take a look at the various ways investors can make money by investing in land:

  • Investors can divide a single plot into several plots to increase its value.

  • Investors can develop on raw land to increase its use and value.

  • Investors can simply buy and hold raw land, as it has historically appreciated more often than not.

  • Investors can lease the land, long or short-term, for a number of reasons to collect rent.

Subdivide For Land Sales

The first way investors can make money off their raw land investment is by subdividing it for land sales. Investors have the potential to increase the total value of their investment by separating it into smaller lots and selling them individually to buyers. In many cases, the subdivided land can be more valuable than the whole. This is due to marketability, and the fact it might be easier to find a buyer for a smaller, more affordable parcel of land, as opposed to one large lot.

The subdivision process of raw land consist of two parts: mapping and legal documentation. The mapping aspect refers to the proposed subdivision area and how it should be defined, while the legal documentation involves submitting the proposed subdivision, which generally includes an application and fee, to the local county. If the application is approved, the subdivision mapping is recorded in the county records.

Develop It

As cities expand, the flexibility of raw land investing continues to be its biggest strength. For many investors, one of the more popular ways of making money with raw land is by developing it into something more.

Depending on the location and zoning regulations, a raw land investment can be developed into a plethora of things, including a residential, multifamily, or even commercial property. In fact, a raw land investment can sometimes be developed into multiple entities, which can ultimately produce a multitude of revenue sources for investors. In addition, this land can become very valuable over time as home and rental prices go up.

Buy And Hold

Thanks to inflation, one of the primary sources for a return on investment with raw land is through appreciation. Because the price of land today has the potential to become more valuable in coming years, buying and holding onto undeveloped land has the potential to earn viable returns for investors, especially in the long-term.

In addition, there are various options for investors to purchase raw land below market value. From auctions to county tax sales, investors have numerous options to obtain land at discounted rates, which will only enhance their ability to earn a positive return. Additionally, investors are recommended to conduct their due diligence when purchasing land through the auction process. In many cases, these deals can be full of risk with little-to-no upside.

Lease It

There are many businesses looking to lease land on a monthly and yearly basis. Generally speaking, these operations need undeveloped land to conduct their operations. A land lease, which is also known as a ground lease, allows individuals and/or companies to rent a parcel of land rather than purchase it. In addition, a raw land investment can be leased for other purposes, including billboard rentals, cell towers, ranchers, and utility companies. This method of earning a profit is very similar to other types of leasing programs, which aims to earn a monthly return on the property through a lease agreement.

How To Evaluate Your Raw Land Investment

The strategy you choose will ultimately guide your search for the perfect piece of raw land. The reason for this is that each investment type will require slightly different characteristics when it comes to the land. For example, the optimal buy and hold plot will likely be in an entirely different area than one intended for billboard rentals. Buy and hold plots tend to appreciate faster in up and coming markets, while land for advertising can be in smaller markets, as long as they are high-traffic areas. Location is not the only thing to consider when evaluating a raw land investment. There are a number of other factors that should come into play before you agree to sign on the dotted line. Review the following questions next time you consider a potential raw land investment:

  • Where is the plot located? While location is not the only thing investors should evaluate, it is the most important. The location of a raw land investment determines the viability of the deal. The plot could be spacious and affordable, but if it’s truly off the grid it may not make the most sense as an investment. Determine your strategy, and narrow down different market areas with options to choose from. For example, if you are hoping to complete a new construction project research expanding neighborhoods in your market area. Once you have an area in mind, then begin searching for the right piece of land.

  • How is the property zoned? A property zone essentially designates what it can be used for, like commercial or residential space. Land can be rezoned, in fact it happens all the time, however this process can greatly impact the timeline of a given investment deal. According to Legal Match, the rezoning process can take around 180 days to be completed. Depending on your exit strategy this can increase holding costs and significantly delay potential profits. Always be aware of a property’s zone before investing to avoid being blindsided by any regulations.

  • Are any utilities available? When most people think of raw land, the first thing that comes to mind is typically a plot of land out in the middle of no where. Although this is not always the case, some land can be located in rural or completely undeveloped areas. That’s why it is crucial to learn what type of resources are available at the property before closing. Are there water lines or electricity? What about internet? These factors can influence not only the overall cost of the deal but also the potential timeline of the project—as you may find yourself waiting for utility companies.

  • What is the history of the land? Similar to the purchase of a residential or commercial property, it is always necessary to complete a title search. Look at the title history of the land and determine whether there are any ownership disputes. Pay special attention to how long the current owner has had the property. If they are trying to sell quickly after owning it, it could signal there is an issue with the property (though they could just be ready to get rid of the investment).

  • Are there any other issues with the area? Before making an offer on a raw land investment, it is a great idea to hire a land surveyor to check out the property. A land survey will confirm the boundaries of the plot and identify any potential restrictions. For example, the land may be in a designated flood zone. Depending on your plans for the land this could greatly affect the potential profitability of the deal. Take precautions when purchasing raw land by doing your homework and hiring a professional land surveyor.

Is Investing In Raw Land Right For You?

In order to be absolutely sure whether or not raw land investing is right for you, ask yourself the following questions, and answer them sincerely:

  • Can You Manage Risk? Although raw land investing tends to be predictable, as with any type of investment, there is always some risk involved. If you are the type of person who is easily overwhelmed by the unknown or you are someone who jumps into things hastily, raw land investing is not a niche you should pursue. When you invest in a plot of land, you are essentially predicting the future. The moment you put money down on the table, you are saying, “I believe that what I am buying into will increase in value overtime.” While, in theory, you are probably right, there are some things that are out of your control.

  • Are You Financially Organized? When it comes to raw land investing, more than likely, you will not realize a profit as fast as you would if you were rehabbing or wholesaling properties. Because of this, it is crucial that you are vigilant about organizing your finances. This should not, however, deter you from undeveloped real estate. Because raw land is a buy and hold investment by nature, it can be a while before your land appreciates enough to produce cash flow. If you are a novice investor, you must perform an honest evaluation of where you stand financially. If you are a seasoned investor, you must assess the state of your finances in terms of your current investments and how you want your business to grow. If you are inherently frugal and make money saving a hobby, it is likely that you will realize success as a raw land investor.

  • Will You Prioritize Research & Due Diligence? Raw land investing is all about asking the right questions, and if you’ve never purchased vacant land before, you are probably not up-to-date on the jargon and terminology. Before investing in any land, it is vital to first research the market. Has there been recent development in the area? Is your plot of land in the path of future growth? If the answer is yes to either of the above question, your property already meets some crucial criteria. Next, you should talk to your lawyer, the seller, and you inspector’s about the zoning on the property. Are there clear boundaries drawn on the plot? Is it zoned for commercial, residential, industrial, mixed-use, or agricultural development? What was the land used for previously? Asking and getting specific answers to all these types of questions is an absolute must. Also be sure to ask questions about the land’s topography, required annual taxes, available public utilities, usage restrictions, and road access. Minding due diligence and researching the right questions are what sets apart the successful raw land investors from the not-so-successful raw land investors.

  • Do You Have Support? Unfortunately, raw land investing is not a “get rich quick” plan. It takes a lot of hard work and perseverance to realize success in the real estate investing world, which is why a solid support system is crucial to have. While it is important to rely on yourself as an entrepreneur, your own personal cheerleader is nice to have when times get tough. Whether this be a business partner, fellow investor, or family member, you are more likely to be successful compared to someone going into raw land investing alone. If you are having trouble finding your support system, consider joining a local REI group or even create your own Meetup.com group. Isolate yourself from the naysayers in your life and find people who are there to help you stay motivated.

Summary

Raw land investing is not a strategy without fault. Not unlike every other exit strategy in the real estate industry, raw land investing coincides with an inherent degree of risk. However, educating yourself on the topic will not only give you the confidence you need to commit, but also increase your chances of realizing success.

Preferred Properties of Texas

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