Real Estate Blog

4 Best Land Investment Strategies for New Investors

Real estate investment is trending in the US because it is less risky and offers a high growth potential. Moreover, owning a tangible asset is a plus for people who feel less comfortable about buying stocks and cryptocurrency. The best part is that the sector offers several diversification options. You can explore residential homes, invest in commercial properties, buy vacation rentals, or pick land for sale.

Agricultural land is an excellent option for smart real estate investors. Statistics show that the US farm real estate value averaged $3,800 per acre in 2022, up 12.4% from 2021. Cropland value averaged $5,050 per acre, an increase of 14.3% from the previous year. Similarly, pasture value increased by 11.5% to reach $1,650 per acre in 2022. The numbers show the growth potential of this alternative. 

State-wise, Texas, Missouri, Iowa, Oklahoma, and Ohio have a maximum number of farms, making them the best options for prospective investors. However, before diving into the lucrative land market, you must know it well to make informed decisions and maximize returns.

In this guide, we will share a few factors to consider when developing your land development strategy. 

Conduct Research and Due Diligence

Research and due diligence are integral elements of investment strategies, regardless of the assets you invest in. They are even more vital when adding land to your portfolio. Dig deep into potential markets or regions to find one with good growth prospects. Other factors to consider are economic indicators, population trends, local zoning laws, environmental regulations, and development projects in the area.

Let us consider the example of the cropland market in Ohio. Compared to the national average rise of 14.3% in 2022, the state witnessed a 15.3% increase in 2021, touching $7,930 an acre. While the price may seem big to investors, the growth potential makes it a wise choice. It is possible to find land for sale in Ohio at Land Broker Co-op when you are ready to look for potential investments.

The good thing about researching options on an online listing platform is that you can shortlist a few that match your expectations and budget. This way, you get a head start when it comes to actual visits, even if you plan to visit from another state. 

Define Your Investment Goals

Whichever form of real estate you want to invest in, you must clearly define your investment goals before dipping your toes into the market. Your goals may range from earning passive income to unlocking capital growth, diversifying your portfolio, preserving your wealth, or creating long-term wealth.

You may seek short-term gains through flipping or long-term appreciation by holding your assets. Conversely, you may plan to hold your land for future use, rent it out for agriculture, or plan to develop it for resale. Let your investment goals guide your decision-making process. Understanding your objectives enables you to narrow down potential properties and tailor your investment strategy.

Prioritize Diversification

Diversification is a fundamental principle of mindful investing, and it applies to land investments as well. It gives you the opportunity to maximize growth while building your defenses against potential risks. According to McKinsey research, only 10% of assets in a diversified commercial real estate portfolio drive 80% of the risks. It means you should choose your assets wisely. 

Consider diversifying your land portfolio by picking different options, such as residential, commercial, agricultural, or undeveloped land. While each option carries its own risks and potential returns, spreading your investment across them can put you in a good place in the long run. You can identify the profitable segments and build a strategy around them. 

Perform a Comprehensive Financial Analysis

The cost of land ownership is as crucial as the returns it offers. A comprehensive financial analysis gives you a clear view of where your investments will take you in the long run. It can help you evaluate the feasibility and profitability of the investment. Start by digging deep into the acquisition costs and ongoing expenses such as property taxes and maintenance. Also, check the potential income streams like rental income and farming revenue.

Calculate key financial metrics such as return on investment (ROI), internal rate of return (IRR), and net present value (NPV). These metrics will enable you to understand current returns and projected appreciation of the property. You can assess the viability of the investment and compare it with other opportunities in the market.

In conclusion, land investment can be a rewarding venture, but it requires careful planning and strategic decision-making. You can go wrong with random decisions, no matter how shiny they appear initially. Having a strategic plan from the outset can help you build a lucrative and risk-free portfolio, whether you are a beginner or a seasoned investor. 

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