Buying Land For Investment

All the sudden you have a windfall of cash and someone tells you "put some of that into land!" Great, where? Why? How?

Those familiar with 1031TFE sales/purchases know the value of rolling these purchases forward. Check with your tax accountant for the extremely valuable investment opportunity here. Basically, you sell an investment property and very quickly invest in another property using the proceeds from your sale. Now that gain is basically deferred.

But what if you have a long time horizon. What are the considerations you should have on buying an investment property? Let's look at raw land. Random purchases of raw land don't work out well a lot of times. Generally speaking, you would expect raw land to appreciate about the rate of inflation, but it doesn't always work out that way - in both directions. Are you prone to win with lottery tickets? Then the random approach may well work for you when the DOT decides that new bypass needs to go through or alongside that random purchase giving you valuable commercial frontage property.

The better approach is to go to your local DOT office and see what is in their 10 year or 20 year plan. It may help you decide where you want to invest on a tract of land! Check with your local county and city officials as well. Often there are plans for communities going out 10-20 years or more that reach well beyond city limits but may affect your future plans.

What about taxes? Consider checking into conservation tax use reductions on your land. If it is a 10 year hold on your own plans anyway, why not use this? It can save you tens of thousands of dollars in taxes -and all you have to do is NOTHING! Really, it encourages those people to do absolutely nothing to their land for 10 or more years and you get a tax advantage for doing so.

But taxes should be a real consideration in making those purchases. Can you afford that annual tax bill? Look at the information available from the County you are buying from. It is free and gives you a lot of information.

Insurance is something to consider particularly if there are any structures on the property. Liability insurance is a good idea as well...even if someone is trespassing, if you have someone get hurt on your land, you want to be covered. Another good reason for putting this investment in an LLC to protect you from similar liability.

Did you know you can sell the timber off your property - even before it has grown to the size needed for timber? Sure, you won't get top dollar - but if you need cash today and don't really care if they cut the land 5 years from now - go for it - but keep in mind if you put it in a timber conservation program beforehand!

Call a Realtor that deals in land for investment. That is really key as they not only will be aware of good deals but they can walk you through the other aspects of your investment.