Land investing is one of the best ways to make money in real estate. But there are many misconceptions and myths that surround the land investing business. Many individuals have a hard time believing that you can make consistent money flipping vacant land. In this lesson, we’re going to list the top seven myths about land flipping and attempt to debunk each.
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Land Is Not A Good Investment
One of the most common land investing myths is that land is not a good investment. People who make this claim may not be aware of the actual data behind land investing. With the land flipping model you are able to turn your capital over several times per year and make high double-digit returns or more per land flip. This is a very common scenario.
For example if you buy a property for $18,000 and flip it for $30,000 after all closing costs are considered, you will net $12,000 on an $18,000 investment. That’s a return of 67% on your capital. And generally you are able to turn over your capital at least two times a year or more. So from the perspective of land flipping, this land investment myth can be completely debunked.
What about if you are a long-term buy-and-hold land investor? Does investing in land make sense for you in that particular scenario? Well, the answer to that will vary based on the type of land that you own. If you invest in farmland for example, you can expect an average annual return of 10% which includes both appreciation from the land and the rental income that you would receive by leasing it out for agricultural use to a farmer. This has been the historical return over the last few decades for farmland.
Investing in rural acreage can provide for a similar upside potential as well. However, it’s important to keep in mind that with most buy-and-hold strategies in rural acreage that is not farmland, you would generally not receive any rental income on the property. In any case, you should still be able to expect a return in the form of capital appreciation of approximately 6 to 7% per year on average.
Now the average annual return in the stock market has been around 9% historically over the last 50 years or so. Given that, farmland investments offer a similar rate of return as a stock market investment. However, the variability or volatility in the stock market far exceeds that of an investment in farmland or other types of land investments.
As such, you can achieve a much better risk-adjusted return when you invest in land. At the very least, investors should consider a partial allocation in land as part of their overall portfolio strategy. So when it comes to this real estate investing myth, that land is not a good investment, we can see that the data simply does not support this myth.
You Can’t Get A Great Deal On Land
Maybe you have already been educated about land investing and the many benefits that it offers. However, you’re still not convinced that it’s possible to get a great deal on a land purchase. You’ve scoured the Internet and studied the asking prices for land on all the popular real estate portals including Zillow, Realtor, Redfin, and more.
Everything seems to be priced at or near market value, and so you convince yourself that there is no way that your will be able to acquire land at a 50% discount or more. It just doesn’t seem plausible to you. You may have even tried to put in a few lowball offers with some brokers and were disappointed that your offers were rejected outright.
The problem here is that you are looking for great deals on land, however, you’re not looking in the right place. So while you can acquire a few good land deals here and there using this MLS strategy, you need to find a better way to fill up your lead pipeline. One of the best ways to do that is by going direct to the seller. Contact the sellers directly either through direct mail in the form of a letter or postcard, via SMS text message marketing, or some other method.
But the point is, to try to go direct to the owner of the land and try to carve out a deal that way. This is, however, easier said than done because you’ll need a consistent process for marketing to potential land sellers. But once you learn how to do this correctly, you will no longer wonder whether or not you can acquire land cheaply.
So don’t make this common mistake that other land investors make. Assuming that you cannot find a great deal on land. It’s a self-limiting belief that can be easily overcome by getting the right education and staying determined and consistent in your acquisition process.
You Need A Lot Of Capital To Buy Land
Now let’s look at another myth about land investing. Some investors avoid land investing because they believe that you need a lot of capital to buy land. While it’s true that if you were looking to purchase land within a major metropolitan city the cost could be quite high. But the type of land that we generally like to buy, and flip are more rural in nature and thus can be acquired at much more reasonable prices.
Most vacant land is located within rural areas, and these are the best types of land to buy and flip for quick profits. Depending on which county or state that you’re looking to buy vacant land in, the price per acre can vary.
But generally speaking, you will find that the market price for many rural tracts of land fall in the range of about $3,000 an acre to $10,000 an acre. So as an example, a 10 acre tract could be valued at around 30,000 to $100,000 or so depending on the area. This would be the market price of the parcel.
We have strategies in place where we can go direct to the seller and acquire the land at 50% or less of market value. So with the example above, we would expect to pay between $15,000 to $50,000 or so depending on the area. While this is not peanuts, it is certainly not out of the reach of many real estate investors who are used to dealing in houses or other types of real estate assets that require hundreds of thousands of dollars or more to acquire.
So the myth that land investors need to start with a large capital base is simply a false claim. While it helps to have a reasonable amount of capital when getting started in land investing, you can start on a shoestring budget such as $10,000 or so.
You Should Only Buy Land In Your Area
What about the idea that you should only buy land in your area? Does this claim hold any weight? Well, there’s nothing inherently wrong with specializing in land within your own county or surrounding counties. However, with land investing you can purchase properties across different states and across the country with reasonable ease once you understand the acquisition strategy and the due diligence process.
So why would you limit yourself to just purchasing land within your immediate area? If you want to find really good deals on vacant land, then you’re going to have to broaden your horizon and start venturing out into other states as well.
I know that this can seem scary at first because many people cannot understand how you can buy land without actually going out and physically walking the land yourself. Well, this too is a self-limiting belief, and I’m here to tell you that I have bought many parcels across different states and regions of the country, and not once have I ever stepped foot on any parcel of land that I purchased.
So this land flipping myth is completely unfounded. There are many tools in the marketplace these days that will allow you to perform all your due diligence on a parcel without having to go out and walk the property yourself. Additionally, you can reach out to real estate agents and other professionals in the area to help in performing your due diligence. A local team can serve as your boots on the ground for any land acquisition that you’re considering.
So if your primary goal is to buy land, and flip it in its current condition, then you should not limit yourself to just a few counties around your residence. However, one caveat to this would be if your primary land investing model centers around subdividing land.
If you are seeking to specialize in buying land and then subdividing it to sell off in smaller parcels, then it makes more sense to concentrate in a specific area. This is because the rules and regulations around minor splits, and subdivisions can vary greatly between one county to the next. And you will want to build a reliable team of surveyors, engineers, and attorneys that can assist you during the subdivide project. So, for this type of land specialization a local focus can be justified.
You Need A Real Estate Agent To Buy Land
Don’t you need a real estate agent to buy land? This is a common misconception among many individuals. While it’s true that you can use the services of a real estate agent to purchase land, it is not required by any means. In fact, the strategies that we employ for land acquisition does not utilize real estate agents.
We do recommend using real estate agents on the disposition side, but for the buy side we hardly if ever do. So as a land investor, not only can you buy land without a real estate agent, but you should also buy land without one whenever possible.
The specific land acquisition strategies that we use focus on are based on direct to seller marketing. In other words, we want to contact potential sellers of land through different marketing channels and deal directly with them to purchase their property. This eliminates the need for real estate agents as intermediaries within the acquisition process. There are a whole host of advantages to doing it this way, which we will certainly cover in detail in some other lessons.
When you have your marketing machine dialed in, you should be getting a consistent flow of leads from motivated sellers who are willing, able, and ready to sell their land to you directly without any intermediary. It’s just you and the seller completing the purchase agreement, and then forwarding it over to a licensed title and escrow company or real estate attorney to close on the transaction.
It’s so much more simpler dealing directly with the seller on the buy side. Less things can go wrong, and you can generally negotiate a much better deal when the seller is not having to worry about paying commission to a real estate agent from the sale proceeds. So now we can debunk the land investing myth that says that you need a real estate agent to buy land.
Land Cannot Provide Regular Income
When it comes to the land investing business, there are three primary specializations. The first land investing model focuses on buying land for cash and then flipping the land for cash without doing any major improvements to the land.
The second land investing model focuses on buying a relatively larger tract of land and then subdividing it into smaller parcels to sell off individually. The third land investing model focuses on buying land for cash and then selling the land to a buyer using seller financing.
So depending on the type of land investing you’re focused on, you may or may not have the opportunity to receive an income off of your property investment. If you focus on the first two models that we’ve mentioned above, where you would be purchasing the land and then flipping it later for cash, then you would not be generating monthly cash flow for the property.
If however, you decided that the seller financed model works better for you, then you could create cash flow from your land investment.
Let’s take a quick example of how owner financing in land works from the land investor’s perspective. If you purchase the property for $10,000 and found a buyer who is willing to buy the property for $25,000 but can only afford to put $1,000 down on the property, then you could create a land contract wherein the buyer agrees to pay you monthly payments over a specified period of time. Once they have completed their payment schedule, then the title would pass to the buyer.
So using the example above, you could enter into a seller financing agreement wherein the buyer would pay you $1000 down and then $400 per month over the next 60 months at 0% interest. So with this arrangement, you are earning cash flow from your land investment. It’s not hard to see how you can generate a very healthy monthly cash flow for yourself or your business if you are able to do these types of deals on a regular basis.
So don’t believe the myth around land investing that says that you cannot make or generate cash flow from your land investment.
You Can’t Get Funding For Land
One of the major attractions of real estate investing is that you can use leverage when you purchase property. And so you would only need to put down a small down payment such as 20 to 30% and be able get financing for the balance of the acquisition price.
While this is certainly true in the area of house flipping and rental properties, most land acquisitions need to be funded with cash. This is because most traditional lending institutions will not finance vacant land purchases wherein the intention is to flip the property rather than build on it for personal use. This leads many real estate investors into believing that there are no funding options when it comes to land investing.
Once you get your feet wet and enter into the land investing business, you will soon discover that there is a legion of investors whose sole business is to fund land transactions. These investors are similar to private money lenders within the house flipping world, but these investors focus on funding vacant land deals.
So if you have a viable deal and a signed purchase agreement, but you do not have the funds to purchase the property, do not fret because you can and will find a partner who will fund that land deal for you.
The way that this typically works in the land investing world is that you and your funding partner would partner on that specific land deal, and upon the sale of the property, you would receive 50% of the profits from the deal, and the funder would receive 50% of the profits from the deal. So essentially, both parties would split the profits down the middle. Although this is not always the case, this is the most common arrangement.
So we debunked yet another myth about land flipping. This one which says that you can’t get funding for your land deal. Don’t believe it, it’s simply not true.
Download the short printable PDF version summarizing the key points of this lesson...
Conclusion
There are more real estate investing myths that surround land investing than any other subset of real estate investing. However as we have seen throughout this article, most of these misconceptions fall flat on their face. Land investing is and will continue to be one of the best and fastest growing segments in real estate. And now is one of the best times to get started as a land investor.
The education, tools, and resources that are available today for land investors were simply not available just a few short years ago. So if you’re serious about making money as a real estate investor, the land investing business model should be at the top of your list to consider.
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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