Buy to Rent Land – Is It a Good investment?

 Buy to rent land? Maybe you think about this.  Investors can find multiple ways to make money from their land. Many investors will calculate and wait for years before selling for a high profit. Other investors prefer to make money promptly, and this can be done by renting the land out.

Because there are a lot of logistics to work out, renting land out can be very complex. Therefore, it is necessary to consider location, scarcity, and benefits. Your land may be perfect for hunting, or it can be waterfront property, or it is located in the middle of the city, etc. 

And without considering the type of rental, it can be hard to evaluate how beneficial the rental will be.

Determining the Cost-Effectiveness of Not Renting

Once you decide not to rent your land, some factors affect your decision, since they are working against you. These factors include:

Loan Interest: If you took out a loan to buy the land, you need to account for all of the interest that will accumulate before the loan is satisfied. This figure can be very high in some cases. For example, a $12,000 parcel may end up costing $14,000 or more at the end of the loan.

Property Taxes: Taxes will be evaluated on the property. If structures are not available, paying property tax is much lower. However, it’s crucial to try and calculate what your annual property taxes will be.

Ultimately, determining the land value over the lifetime of ownership is very important. Land evaluation values are tough to assess because of the state and city differences. It’s recommended to find out land prices in and around your property. Therefore you can determine how much land prices have gone up over 10 years.

Utilizing this data, you can:

1. Predict the land’s value in 10, 20, 30, etc. years.

2. Calculate benefit by taking the forecast price and subtracting the purchase price

3. Add up property tax and interest costs over the lifetime of ownership (don’t forget to multiply by how many years the property will be kept)

4. Subtracting total costs from the calculated benefit

For instance, you have the below piece of land:

 Purchased for $12,000

 Predict value in 10 years of $16,000

 Interests and taxes of $200 per year

So, we would take $16,000 – $12,000 to come to a profit of $4,000 ($200 * 10) for a total profit after costs of $2,000.

All you had to do was purchase the land and this isn’t a bad deal. However, in some cases, deals may have an irregularly high interest or property tax rate that reduces their benefits and puts them in the negative. In this condition, you lose your money on this investment, which is never a smart choice.

Renting Factors and Considerations

Once you rent land, you like it to be as cost-free and hands-free as possible. In this scenario, there are few costs involved with the maintenance of the land. However, once you rent the land, there may be extra costs:

Insurance policies

 Landscaping and maintenance:

These are the two major factors. Since you own the land, you will be held responsible for injuries that happen on the property, so you’ll need the proper insurance. For instance, if you rented the land to a tenant and they never warned you of a hole on the lot, you may be held responsible. If a person were to become injured, it may be your duty to fix the hole.

The ideal scenario is a written agreement and the right contract that the renting party will be 100% responsible for the maintenance of the property.

Covering loan payments and property taxes as well as gaining a small amount of extra income are advantages of renting land.

Finding someone to rent the land and ensuring to appropriately follow all of the legalities are important in this plan. Therefore, when you decide to sell the land with zero expenses you gain a much higher profit.

Renting Land Options

You understand the profits of renting land. However, who is searching to rent land?

Farmers: Lots of farmers rent land for crops and grazing. Therefore they are permanent renters, and this is the perfect tenant.

Hunters: If your land is located in an area with an abundance of wildlife, hunters like to rent the hunting rights to your land.

Residents: Individuals in trailers or tiny homes may decide to rent your property. Smaller upfront capital will be needed, and such people will rent the land for a high price.

Owning a property in a greatly demanded area of the city on a populated street, provides you an opportunity to sign a long-term rental agreement with a business. Big companies like McDonald’s have been known to rent land in populated cities and earn thousands of dollars a month.

Finding such properties in cities is not easy and you need to be lucky. However, some areas of cities become populated over time, therefore you have this opportunity. Locking in a long-term agreement can be a drawback but you earn a lot of money in the process.

Is it a good idea to buy to rent land?

Yes, if it can be money-making. To determine the profitability of the venture you should conduct your research. In addition, because some cases need much work, it is not very viable, to buy land for rent.

Renting land to trustworthy and reliable people is great because you can make some money and land’s price increases over time.

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