At a time in which everyone is talking about Robinhood, bitcoin, stocks, the shift to digital, and even NFT, it is easy to forget that investing in land is the oldest form of investing and also a stable and potentially lucrative way to invest.
The most crucial thing to remember about land is that it is naturally in short supply. There can never be too much land. Indeed, land, overall, is becoming increasingly scarce as the global population increases. This tells you that the future of land as an investment class is a great one.
Defining Raw Land
Raw land is one of the most exciting land types you can find. Basically, it is undeveloped, unprepared, untouched land.
Even though it has not been prepared or developed for construction, it is becoming increasingly popular with investors.
Is investing in raw land right for you? That depends on what you want from a real estate investment.
You have to remember that investing in land requires the kind of patience and far-sightedness that is often lacking among many people. Land is a long-term proposition. And this is more so for raw land.
When you invest in raw land, you are buying the opportunity to create whatever your imagination can envision. You can build a hotel, a parking lot, or a hospital. Done right, investing in raw land can be spectacularly profitable.
I mentioned limited supply in the beginning of this piece. Well, raw land is in even more limited supply than the broader category of land. As more and more places are developed, there are fewer and fewer patches of raw land available. And demand is growing fast.
The result is that the value of raw land is likely to appreciate enormously in the future. Raw land is a very attractive asset class.
This is likely to continue because as the world’s population grows, there will be a demand for raw land to build homes, shopping malls, data centers, and all the other things that go into making up our civilization.
Limited supply is your friend.
Financing Time Frames
One thing that makes investing in land so attractive is that financing time frames offer you so many opportunities.
The length to which a lender will allow you to pay a loan, depends a great deal on location and use of the land.
So, for example, lenders are particularly keen on lending where the land exhibits some degree of intrinsic value. Land with intrinsic value is land for which the lender can extract cash flow of some kind so that in the event of your defaulting on the land, that lender will be able to extract the remaining debt from the land.
Remember, lenders are inherently risk-averse and if you present them with land that has very few risks, if any, then you can negotiate very favourable terms.
However, there is a limit to how long you will be allowed to pay off a loan. Raw land, for example, because it is not easily convertible into cash flows, comes with shorter lending terms than other land categories. This reflects the risk of the investment. You should expect lending periods of 10 years or so.