Vacant land investing is a highly lucrative business model within the broader real estate investment space. It’s an area that provides a lot of upside potential with limited downside risk. In this article, we’re going to dive into what vacant land investing is and how to invest in vacant land. In addition, we will breakdown the entire process from beginning to end.
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What Is Vacant Land Investing?
Vacant land investing is a lesser-known business model that entails purchasing raw land at a discount to the market and then trying to sell it for a quick profit shortly thereafter. Often the property will be acquired directly from a motivated land seller using various lead generation techniques. One of the major benefits of vacant land investing is that the upfront capital to get started in this business is much less than other types of real estate investing such as house flipping and wholesaling.
What’s more, the profits generated from vacant land flipping from an ROI perspective are generally much greater than most other real estate investments. It is not uncommon to yield profit margins in excess of 50% to 100% on a vacant land deal in a relatively short period of time such as a 3 to 6 month span.
Although there is a great deal of potential in investing in vacant land, this subset of the real estate investing space is quite misunderstood by many newbies and real estate professionals alike. This can be viewed as a good thing for vacant land investors as the competition is much less than another real estate investing niches. And so, the opportunity for outsized gains combined with a relatively small starting capital base makes vacant land investing one of the best areas of real estate investing is a whole.
Even within the vacant land investing space, there are different types of business models that exist. For example, some vacant land investors prefer to purchase and resell for cash. This is the primary business model and the one that we will be discussing today. However, some other land investors prefer to purchase and resell the property through a seller financed arrangement with the buyer.
This allows the investor to earn a residual income from their property sale. So, in this case, the vacant land investor acts like a bank. This seller financing land model will be a topic for another day. For now, it’s important that you understand the difference between the two primary vacant land investing models as we move forward.
Picking A Market For Vacant Land Flipping
One of the most crucial aspects of raw land investing is making sure that you are selecting the right market. There are good markets for vacant land investors and there are not so good markets for vacant land flippers. As such, it all starts with market research. Now, market research in the context of land investing is a relatively deep topic, and we can and will address this in more depth in other articles. For our purposes here let’s define what we mean by market research for land investors so that we have a basic understanding of it.
Market research in raw land investments consists of organizing, measuring, and quantifying market related information so that we can make objective decisions based on hard real estate data. So, what type of characteristics should we look for when selecting the right market for land investing? Well, there are many different ways to evaluate a good market versus a bad market for land investing. As a general rule, land investors will gauge the most important factors based on a county level.
Some of the common questions that you should ask during the market research process include the following:
What does the population growth rate look like?
How far away is the closest suburb or big city?
How are like kind properties selling in the area?
How many active listings are there?
Is it a high crime or low crime area?
What are the most common land uses for properties in the area?
How cheap or expensive are land parcels in the county?
These are just a few of the questions that you will need to dig deeper into during your market research phase.
Reaching Your Target Market For Buying Vacant Land
When you’ve narrowed down the county or list of counties that you will be targeting, the next step is to figure out how you will reach your target audience. In today’s world, there are many different types of marketing avenues that you can choose to reach your specific audience.
Some examples include digital marketing using Pay per click advertising, search engine optimization, email marketing, and more. Additionally, you could choose to utilize SMS or text marketing. Or you might consider a more traditional approach such as cold calling, or direct mail. The point is that there are many different ways to reach your audience. But is there a preferred method; one that performs better than the others?
When it comes to trying to reach your ideal audience for vacant land acquisitions, there are two primary methods that most land investors rely on. The first is direct mail marketing in the form of a traditional letter or postcard. And the second is SMS marketing. These two methods provide for a great deal of reach and scale along with the ability to target motivated sellers at a granular level. The type of marketing method that you choose will depend on your own strengths, weaknesses and preference. Additionally, it’s important to keep in mind that these marketing channels are not mutually exclusive.
Some of the most successful land investors use multiple marketing channels within their outreach program. But it’s important for beginners to try to stick with one method and master it completely before moving on to another channel. This will help ensure that you’re staying focused and avoid the shiny object syndrome.
Now having said that, most beginning land investors would be best served starting out using direct mail as their primary method for finding motivated land sellers. Direct mail is relatively easy to get started with, and it is one of the most impactful type of lead source for vacant land flippers.
Managing Your Inbound Lead Flow
So, what do you do when the phones start ringing from motivated sellers looking to sell their land? You’ll need to think about setting up some sort of process for handling your inbound leads. If you’re just starting out, this can be as simple as setting up a Microsoft Excel or Google spreadsheet to keep track of all your leads. As your business ramps up, you should consider utilizing some type of CRM, Customer Relationship Management system to more efficiently manage this process.
Some of the more popular CRM platforms for land investors include Pipedrive, Airtable, and Pebble. These are all excellent CRM platforms. You may want to test drive the features of each of these applications to see which one best suits your particular needs. Regardless, do not get overly bogged down with the CRM selection process.
If you are a beginning land investor, it’s much more important to focus on selecting the right markets and getting your marketing channel dialed in. As I noted earlier, you could always start off using Excel or Google sheets and work your way up from there.
Performing Due Diligence on Raw Land
If you’ve put time into selecting the right markets, and have sent out a batch of mailers, you will soon be getting prospective land sellers who are interested in taking you up on your offer to purchase their property. So, here’s where the next phase of the land investing cycle comes in.
Specifically, this is the due diligence phase. Within the due diligence phase, we will be taking a more detailed look at the property and ownership characteristics. Essentially, we want to make sure that the property is priced correctly and worth buying.
It’s often a good idea to create a due diligence checklist so that you do not miss anything important during this step. A simple checklist will help you go through this process in an efficient and objective manner and minimize any chance of making a mistake. Let’s look at some of the elements within the due diligence phase that every vacant land investor should address and analyze.
Zoning – We need to find out what the zoning classification and land use is for the property. Is the property classified as residential, agricultural, commercial, or other?
Access – Does the property have road access or an easement that leads into the property? Access can come in two forms, legal access and physical access. And in most cases, we want to ensure that we have both of these types of access.
Wetlands and Flood zone– Does the property have wetlands on it, or is it located within a designated FEMA flood zone? You want to be completely sure about this as it can impact what you can ultimately do with the property.
Topography – What does the topography look like on the property. Is the parcel flat, slightly sloped, heavily sloped, or on the side of a mountain? Obviously, the greater the slope of the property the more challenging it will be to build on it. As such topography and slope need to be considered.
There are other due diligence questions that need to be asked in addition to the most important ones noted above. But at the very least this would be a starting point.
Vacant Land Acquisition – The Negotiation Phase
Once you’ve completed the due diligence phase, it’s time to solidify the deal. Sometimes the seller will accept your initial offer, but there may be instances where you need to negotiate the price or terms further in order to lock in the deal. Negotiation is often a sticky point for many new vacant land investors, and it takes some time and practice to really get good at it. Here are a few things to keep in mind when you’re negotiating with the seller:
Get to know the seller’s pain points – Take some time to understand where the seller is coming from so you could help them solve their problem. Often times, the seller has a specific number in mind, which they may not be willing to share with you outright. If you can try to get into their heads and ask the right questions, you’ll get a better sense of where the seller stands, and what their ultimate bottom line number is.
It’s not always about price – Often when we’re negotiating a raw land acquisition, we assume that the price is the most important element for the seller. But this is not always the case. Sometimes a fast closing or some other consideration may be an overwhelming factor for the seller. So, it pays to ask the seller what’s most important to them in trying to get the transaction completed.
Educate the seller about their property – Many landowners who are looking to sell the property may not have detailed knowledge about the property characteristics. This is quite common especially among those sellers who have inherited the property. So, if there are certain negative characteristics about the property or challenges that you see with it, it makes sense to share that with the seller. Doing so may help you justify a lower offer price, and the seller will have a better perspective on where you are coming from.
Closing On Your Vacant Land Investment
Hopefully you have been able to reach an agreement with the seller, and you have a signed purchase agreement in place. Now it’s time to move ahead into the closing process for the land acquisition. Some vacant land investors prefer to self-close through a notary service, while others prefer to use a professional title and escrow company or licensed attorney.
As a general guideline, the higher the property value the more beneficial it is to close through title and escrow. Although there is no hard and fast rule for this, I would suggest using a title and escrow agent for all transactions above $5000 or so. You will save a lot of time, headaches, and aggravations by using a professional closing agent.
So, what exactly does a title company do? Well, your title company will be responsible for performing a title search on the parcel and ensure that the seller is the legal owner of the property. Additionally, the title company will provide an insurance policy that protects you, the buyer, from any errors or issues that may arise later on.
Furthermore, title companies can act as a closing agent, which is a neutral party responsible for facilitating the transaction and ensuring that all parties involved have met their obligations under the contract.
Getting Your Vacant Land Listed & Sold
Once you have the property titled in your name or your company’s name, you’re ready to start marketing the property for sale. If you followed our process up until now you will have purchased the vacant land at a substantial discount, and as a result, should have plenty of room for upside profit.
So, what’s the best way to market your newly acquired vacant land parcel so you can sell it quickly? There are generally two methods that raw land investors use for reselling vacant land. The first involves a do-it-yourself approach where you market the property on various online websites and handle all incoming buyer inquiries internally. The second method involves hiring a land specialized agent to handle the marketing and sale of the property.
There are pros and cons to using each method and you will need to work out what works best for you. But as a general rule, you will want to utilize a professional real estate agent specializing in land for relatively higher priced properties over $20,000 or so, while you can opt to market any vacant land that you purchase below this threshold through a do-it-yourself approach.
Generally, real estate agents tend to shy away from low price listings because the commissions that they may earn for the work involved may not be worth their time. And so, many land investors often have no choice but to market lower price point properties on their own. There are various online websites, social media platforms and land specific portals that you can utilize to market your parcel.
In most cases, it’s better to retain a land specialized agent whenever possible. Good land agents will have familiarity with the area and can provide you boots on the ground and expertise specific to the area.
Test & Refine Your Vacant Land Investment Process
One vacant land investing tip is to always be aiming for continual improvement in your processes. The more you execute, test, and refine the different aspects of your land business, the more successful you will be. Things are always changing in the raw land investing space, and so you need to stay abreast any major changes and evolve as needed. This is what successful undeveloped land investors do and what you’ll need to do if you are to join their ranks.
Let me give you one example of where you can test and refine your land investing process to achieve better results. Say that you’re starting out with a direct mail campaign to reach your target audience of motivated land sellers. You could run a split test where you send 50% of your list a traditional letter and send 50% of your list a postcard mailer.
This is considered a split testing campaign where you are trying to gauge which type of direct mail campaign might work better in a particular county or region. If you find a traditional letter is performing better than a postcard or vice versa, then you can use that knowledge to scale up your better performing direct mail campaign within that area.
Download the short printable PDF version summarizing the key points of this lesson...
Summary
By now you should have a good understanding of how the vacant land investing business works. Compared to home flipping, wholesaling houses, and buying rental properties, land investing is much less time-consuming and provides a much better return on investment when done correctly.
Within these other real estate niches, the competition can be fierce and often requires much more capital to get started. Vacant land investing on the other hand is not nearly as competitive and you can get started with a relatively small amount of capital. The upsides to land investing are many.
Although we’ve only scratched the surface in this article, we’ve provided a good outline of what is involved in buying raw land as an investment. This should help you to get started on your journey to becoming a vacant land investment professional.
Vic Patel is a full time land investor and co-founder of Land Dealmaker. He specializes in flipping rural vacant land across the country and teaches others how to start, grow, and scale their land investing business. Make sure to sign up to the Land Dealmaker Email Newsletter where he shares his exclusive land investing tips, strategies, and insights.
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