How to Invest in Land

Investing in land has long appealed to people who like the idea of owning something tangible. Unlike stocks or bonds, land is a physical asset that can generate income, appreciate over time or serve as the foundation for future development. Markets can rise and fall, but demand for housing, agriculture and commercial space continues to create opportunities in different corners of the land market. From buying raw acreage to investing in farmland funds or publicly traded real estate companies, there are several ways to gain exposure depending on your budget and goals.

If you’re considering adding land or real estate exposure to your portfolio, talk it over with a financial advisor. Connect with an advisor for free.

Types of Land Investments

Investing in land isn’t a one-size-fits-all proposition. Investors with varying levels of wealth and risk tolerance may gravitate toward different types of land investments. Use the following list to gauge which land investments appeal to you.

Commercial and Residential Land Investments

Commercial and residential properties have broad appeal because investors of all sizes can access them. For example, you might not be able to afford an apartment building, but you can purchase shares in a real estate investment trust (REIT) as you would purchase shares of a company’s stock.

REITs allow you to focus on one type of real estate, such as residential properties, or combine multiple sectors within a diversified portfolio. That said, REITs are generally diversified whether you choose one or multiple types of real estate investments. In addition, as with investing in company stock, your investments can typically be as small or large as you like.

The downside of investing in REITs is that you won’t have any actual land to use or inhabit. Therefore, if owning your investment properties appeals to you, purchasing land may be a preferable route if you can afford it.

Livestock and Crop Farmland

Becoming a homesteader allows you to directly own your investment in a specific property. Living on and running your farm or ranch might be your dream come true, and the potential returns are icing on the cake. However, raising crops and livestock is expensive and risky. As a result, deep pockets and the ability to manage stress are often necessary for this type of investment.

Crops and livestock are just the beginning of investing in agricultural land. For instance, you could cultivate an orchard, vineyard, mineral development land, timber farm or recreational land. Generally, these investments require less up-front capital than crops and also allow you to live on the land.

Specialized Agricultural Investments

On the other hand, if farming interests you but owning land doesn’t, exchange-traded notes (ETNs) and exchange-traded funds (ETFs) are a less costly way to get exposure to agricultural land.

Like crops and livestock, you can purchase shares of ETFs and ETNs for specialized land if running your own timber operation seems overwhelming. Through these funds, you’ll have exposure to land rich in timber, oil and more and potentially earn returns without owning an acre.

Tips for Investing in Land

If investing in land seems daunting, following these tips can help you make the most of your investments:

Understand Your Investment

Dotting each “i” and crossing each “t” can be irritating, but it’s usually worthwhile. Details like zoning laws, property lines, parking and whether an old apartment building has lead paint can make the difference between a profitable investment and a financial headache. Additionally, a title search can help ensure you would own the land outright with no disputes.

Research the Region

Every piece of land sits in a place where employment, household income and population interact and fluctuate. Ideally, the land you invest in will be located in a region experiencing growth in these factors.

Follow Your Risk Tolerance

Investors generally should align investments with their risk tolerance. If you’re risk averse, investing in areas with high population and income might be the solution. Buying land in a region with consistent demand and healthy economic activity can help offset the possibility of losing a fortune on a land investment.

Check the Water Waitlist

Some municipalities forbid new hookups to city water because of water shortages. For example, the city of Cambria, California, has not approved new water connections since 2001. As a result, reviewing your city’s water situation is critical before building new residential or commercial properties.

Verify the Tax Situation

Every municipality has different tax stipulations that can affect your investment’s profitability. For example, your city might charge income tax to residents and businesses. In addition, you might receive special tax breaks for using land in a specific way, such as farming.

Review Your Mineral Rights

As with taxes, mineral rights can vary based on region. For instance, your investment might grant ownership of the land you want but not what lies a few feet beneath the surface. This scenario could lead to legal mining or drilling by other parties with no financial benefits for you.

Key Considerations When Investing in Land

Investing in land involves more than finding a plot and making an offer. Legal issues can render even attractive land a poor investment for reasons out of your control. For example, your municipality might tightly control how you can use the land in question, ruining plans for potential buildings or farms. Plus, part of the property might be legally accessible to your neighbors due to land easements.

Furthermore, bordering a body of moving or standing water can affect land accessibility and create floodplain conditions. As a result, it’s essential to review the land’s deed to understand the legal ramifications of ownership.

Once you’ve ruled out legal restrictions, examine the land’s utility connections. Paying for new water or electrical lines can significantly reduce potential profits. In addition, proximity to towns and cities, the likelihood of attracting trespassers and how the land will impact your taxes are all vital to consider.

Is Investing in Land Right For You?

Several solid reasons might lead you to invest in land. First, you might aspire to own and operate a farm or vineyard and enjoy the financial returns as a side benefit. Or, as an investor looking to diversify their portfolio, you might invest in REITs with a proven track record. Alternatively, you might research a commercial or residential property and begin collecting rent.

Investing in land might not be suitable for you if you don’t want to do extra research on your investments or take on more risk. While real estate in its many forms can be a lucrative investment, uninformed decisions generally result in losing money.

Frequently Asked Questions (FAQ)

Is investing in land a good long-term strategy?

Land can appreciate over time, particularly in areas experiencing population growth or economic expansion. However, returns vary based on location, use and market conditions. Unlike stocks, land does not always generate income unless it is developed or leased.

How much money do you need to invest in land?

The required investment depends on the type of land and location. Raw rural acreage may be relatively affordable, while commercial parcels or farmland near growing cities can require substantial capital. Investors can also gain exposure through REITs or ETFs with much lower minimum investments.

What are the biggest risks of investing in land?

Risks include zoning restrictions, lack of utilities, environmental issues, illiquidity and market downturns. Because land can be difficult to sell quickly, investors should be prepared for longer holding periods.

Is land more stable than other real estate investments?

Land can be less volatile in some markets because it does not depreciate like buildings. However, it may also take longer to appreciate and often requires patience and careful due diligence.

Bottom Line

You can invest in land through residential and commercial property, farmland and specialized agricultural investments. In addition, you can invest by directly purchasing land or buying shares of REITs, which give you a diversified slice of the real estate market, spreading risk across numerous assets. When investing in land, it’s recommended to research the relevant factors in your situation, such as tax obligations, title status and environmental implications.

Investment Tips

Investing in land can be intimidating, especially if you’ve never purchased property other than your home. That’s where a financial advisor may be able to help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
While it would be great to be a real estate mogul, the reality is that most investors don’t have millions to invest in land. Not to worry: here’s how you can invest in real estate with little money.