Land is one of the oldest and simplest forms of rental real estate. Renting land can vary in its location and use, such as land in a rural area for agricultural endeavors, or an undeveloped lot in urban areas for storage. Overhead of land ownership is often lower than a comparable investment like an apartment building, but constant expenses still remain such as property taxes and maintenance upkeep. Below we take a deep dive into everything you need to know about land properties.
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Land (Property) Definition
As it relates to real estate, land refers to the immovable and natural earth surface. Land ownership is determined by its defined boundaries that are documented and need not be shown on the land itself. These defined boundaries of land are collectively referred to as a “Lot” or a “Plot”.
Difference Between Land vs Real Estate
Although they are used interchangeably, there actually is a difference between Land vs. Real Estate. Land refers to the natural earth area only. Real Estate refers to everything in the definition of Land, plus everything that is permanently attached to the land, which can be natural (e.g. trees) or artificial (e.g. buildings).
|Defintion: The natural materials of earth (i.e. soil and rock)||Definition: Land plus anything permanently attached to it|
|Examples: Trees, Bushes, Boulders,||Examples: Houses, Buildings, Fences|
Types of Land Properties
There are several different types of land properties that you need to be aware of – whether you’re a prospective homeowner, rental real estate investor, or just planning your financial future. We take a look at each type below.
Agricultural land is land that is dedicated to food production, including farms, ranches, timber tracts, aquaculture farms, and more. If you’ve driven by a farm or ranch in your travels, you know what we mean. The United States currently possesses more than 900 million acres of farmland, which represents about 40% of all the land in the United States, according to the United States Department of Agriculture aka the USDA.
Agricultural land is split into two main types: Pasture Land and Cultivable Land.
Pasture land is land that is used for the grazing of livestock. This land is typically found in rural areas and is often used for grazing cattle, horses, and sheep. Pasture land is usually fenced in, and is often times divided into sections for different animals. Many of the products you eat and use every day come from the productive use of pasture land, including meat, wool, milk, and other products. In the United States, pasture land is used primarily to feed grazing livestock like sheep, cattle, and horses.
Cultivable land is any land that can be used to grow crops or other plants. This includes both farmland and gardens. The term is often used interchangeably with arable land, which is land that has been plowed and is ready for planting. Cultivable land is a vital resource for any society that depends on agriculture for its food supply. The amount of cultivable land available can limit the size and productivity of a society. For example, the Roman Empire was only able to support a population of about 60 million people because of the limited amount of cultivable land available.
Examples of Agricultural Land include:
- Crop farms
- Poultry farms
- Aquatic farms
Recreational land is defined as property that is used for enjoyment- hence, recreational. This land type runs the gamut from an urban greenscape like NYC’s Central Park or a hunting ranch deep in the heart of Texas. Recreational land might be privately owned, like a family ranch, or it may be privately owned, like a private reservoir or lake.
Examples of Recreational Land include:
- Tourist and hunting ranches
- Dirtbike and ATV parks
- Horse pastures
- Fishing properties
- Camping grounds
- Bike paths
- City parks
Commercial land refers to property used for commerce or operating some type of income-generating business. The use of commercial land shapes how we work, eat, live, and pretty much do anything in our shared environment, and effective commercial land use is the hallmark of a great city.
When land is earmarked for commercial use, it can dramatically alter the value of the underlying land. Commercial land can also have a significant positive effect on nearby land and property values even if the land in question is not designated as commercial.
This boost can come from the increased economic activity and desirability that often comes along with commercial growth- think Rodeo Drive in Beverly Hills or Times Square in New York City. As you may have figured out by now, commercial property is often leased out to generate rental income.
Examples of Commercial Land include:
- Restaurant properties
- Retail spaces
- Hotels, motels, and other hospitality properties
- Office buildings and parks
- Hospitals and medical facilities
- Industrial and manufacturing buildings
- Logistics and storage, like Amazon warehouses or self-storage facilities
Residential land refers to any property that does or can include a residence, aka a place for people to live. In most cases, residential land is zoned to specifically include housing, although there are mixed commercial, residential, and industrial zones in many regions of the US.
Beyond zoning, there are significant regulations around residential land use. Everything from the size of each unit or building, sun coverage and window access, parking restrictions, and many other items will need to be taken into account when constructing or operating a residential property.
The value of land in residential areas will differ significantly depending on where it’s located, local schools, access to transportation, proximity to commercial areas, and more. That’s why a beachfront property in Malibu is more expensive than a single-family rental home in Gary, Indiana.
Examples of Residential Land include:
- Traditional single-family homes
- Apartment complexes
- 2,3, and 4-unit properties
- Tiny homes
- Manufactured and mobile homes
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Renting Out Vacant Land Properties
With the high cost of living and the instability of the housing market, many people are looking for alternative investments that will provide a good return without all the hassle and volatility of other markets. Raw land is one of those types of real estate investments. There are several ways that investors can generate returns by renting out vacant land properties.
Not all of these uses will work for every property, but if you have a safe, accessible piece of land at least somewhat near a major population center, you can probably use one of these methods to generate a little (or a lot!) of income.
- Create a storage facility
- Charge for car, RV, boat, or plane parking
- Harvest timber
- Rent RV and tent spaces to travelers
- Hold festivals and events like a Shakespeare Festival or rock concert
- Lease land to a farmer or other agricultural operation
- Open up access to campers, hikers, hunters, or fishers
Pros and Cons of Investing in Land
Land can be a fantastic addition to your investment portfolio – after all, they’re not making more of it. Well, outside of certain volcanic hotspots. However, like any investment avenue, there are many things to consider when thinking about investing in land. Here are a few Pros and Cons of investing in land to consider before making your decision.
Land Investing Pros
- Physical Asset – Land is a physical asset you can touch and feel, unlike stocks and other intangible investments.
- Limited Resource – Land is a limited resource, so there is the potential for appreciation in value over time.
- Many Uses – You can use the land for personal use, rent it out, or develop and sell it for a profit.
Land Investing Cons
- Upfront Costs – The initial investment can be expensive, depending on the location and size of the piece of land.
- Difficult Selling – It can be challenging to find a buyer when you’re ready to sell, and the sale process can be lengthy.
- Limited Income – Unless you successfully rent it out, most land investments do not generate regular income.
Land Property Management
Even though land properties are some of the simplest forms of rental real estate, they require sufficient management in order to protect and maximize their use. As an investor in land properties, you can choose to get hands on with the routine management or outsource it to a professional property management company. Either way you choose, understanding the ins and outs of land property management is essential for every investor.
How to Invest in Land Properties
When it comes to investing in land, there are a few things you need to take into consideration. Here are 5 tips on how to invest in land properties:
1. Location is Key
When you’re looking at land properties, the location is going to be one of the most critical factors. You want to make sure you choose a location that will be in demand.
2. Research the Market
It’s essential to do your research and understand the market before you invest in land. You need to know what the land is worth and what the demand is like.
3. Have a Plan
Don’t just buy land and hope for the best. You need to have a plan for what you’re going to do with the land. Are you going to build an apartment building for rent on it? Sell it for a profit? Use it for farming?
4. Be Patient
Don’t expect to make a quick profit when you invest in land. It can take years for the land to appreciate in value.
5. Have Realistic Expectations
Investing in land is not a method to get rich quick. It’s a long-term investment, and you need to be patient.
Investing in Land Methods
There are several different ways to invest in land. You can buy land outright, lease land, or even participate in a land pooling arrangement.
When you buy land outright, you become the owner of the property (also known as Fee Simple). This gives you the most control over what happens on the land, but it also comes with the greatest financial responsibility.
When you lease land, you are essentially renting it from the owner. This can be a great option if you don’t have the up-front capital to purchase the land outright or if you’re not ready to make a long-term commitment.
Land pooling arrangements are becoming increasingly popular, especially in urban areas. In a land pooling arrangement, a group of investors pool their resources to purchase a piece of land. Land-oriented REITs, real estate firms, and crowdfunding deals also fall within this category.