The old saying “they’re not making any more of it” makes buying land sound like a can’t-lose investment. While the supply is finite, that simple logic can be a trap for new investors because it overlooks a fundamental difference between owning raw land and almost any other asset you might consider.
Think about a classic real estate investment: the rental house. Its primary benefit is obvious—a monthly rent check that creates positive cash flow. But that income comes with constant demands, from finding tenants and fixing toilets to saving for a new roof. In practice, a $150,000 rental property might generate $1,200 per month, but it also carries the risk of vacancies and unexpected, expensive repairs.
Investing in raw land is the financial opposite. It generates no monthly income; in fact, it has yearly expenses called carrying costs, which are primarily property taxes. That same $150,000 invested in a parcel of land might cost you $1,500 annually, but its low-maintenance ownership means no tenants and no broken pipes. Land simply asks for your patience.
So, if it costs you money to hold, how does it function as an investment? The profit from undeveloped property comes almost exclusively from appreciation—selling it down the road for more than your total purchase price and carrying costs combined. This strategy trades monthly income for simplicity and the potential for long-term growth.
What to Look For: Finding Undervalued Land That Matches Your Goal
Before you even open a real estate app, the most important question to ask is: “What is this land for?” Are you dreaming of a private campsite for weekend getaways, or are you hoping to sell the property in ten years for a profit? Your goal dictates everything. Recreational land just needs to be accessible and enjoyable, while land for long-term investment needs to be in an area with future demand.
To find land with strong appreciation potential, try to identify the local “path of growth.” This simply means researching where development is headed. Are new stores, schools, or housing communities popping up on the edge of a nearby town? Buying just beyond that current wave of construction can place your investment directly in the path of future progress, making it more valuable over time than a stagnant, remote location.
As you search, you’ll inevitably see some properties priced far below others. This is often a red flag, not a bargain. This “cheap” land might be landlocked, meaning there’s no legal road to get to it, or it may lack access to essentials like water and electricity. Adding these utilities yourself can cost tens of thousands of dollars, instantly erasing any savings from the low purchase price.
Finding the right property is about matching your personal goal with a location that has genuine potential, not just a low price tag. Once you’ve identified a promising parcel, it’s time to do your homework to confirm it’s not hiding any of these expensive problems.
Your Due Diligence Checklist: 3 Critical Checks to Make Before You Buy
That crucial “homework” phase has an official name in real estate: due diligence. Think of it as a professional inspection, not for a house, but for the land itself. This investigation is a simple framework designed to protect you from buying a property with hidden, expensive problems. By focusing on three core areas, you can confidently assess whether a property is a smart investment or a potential money pit.
This due diligence checklist will guide your questions and research:
- The Legal Check: First, confirm the property’s zoning, which are the local rules dictating what you’re allowed to do with the land (e.g., build a single-family home, use it for recreation only). It’s just as important to verify legal access. Without a documented road or an easement (the legal right to cross a neighbor’s property), your land could be “landlocked” and nearly impossible to use or sell.
- The Physical Check: Next, investigate the land itself. If your goal is to build someday, you’ll likely need a soil or “perk” test. This confirms the ground is suitable for a septic system, a must-have in areas without public sewer. A failed perk test can make a property unbuildable. You should also get quotes for bringing utilities like electricity and water to the property line.
- The Financial Check: Finally, look beyond the asking price. Ask the county for the annual property tax bill, as this will be a yearly carrying cost. Then, have your real estate agent pull “comps”—what similar, nearby parcels have actually sold for recently—to ensure the price is fair.
Once you’ve done your due diligence and confirmed the property is a solid, problem-free asset, you can move forward with confidence.
How to Finance a Land Purchase (It's Not Like a House)
You might assume getting a loan for land is just like a home mortgage, but it’s a different ballgame. Banks view raw land as a riskier asset because it’s harder to sell if a borrower defaults. Consequently, they often require a much larger down payment—typically 20% to 50% of the purchase price—which can be a major hurdle for many aspiring buyers.
This is why seller financing is so common in land deals. In this setup, the owner acts as the bank. You make payments directly to them over an agreed-upon period, based on a negotiated interest rate. It’s a flexible approach that can make a purchase possible when a traditional bank says no.
Because the terms are entirely negotiable, it is absolutely essential to have a real estate attorney draft a formal contract. This protects both you and the seller, ensuring all expectations for your seller financing land deal are clear and legally binding. Never rely on a handshake agreement, no matter how simple the arrangement seems.
From Dirt to Dollars: 2 Core Ways to Make Money From Vacant Land
The most straightforward strategy to make money from vacant land is simply to wait. This “buy-and-hold” approach, sometimes called land banking, relies on natural appreciation. You buy a property in an area you believe will grow, and you hold it for years, doing little to no work on the land itself.
Your profit comes when you sell the land for more than you paid, after market forces have worked in your favor. These land appreciation rate factors are often external, like population growth pushing a town’s borders outward, new roads improving access, or major employers moving into the region. You are essentially betting on the path of future progress.
A more hands-on approach involves “forcing appreciation,” where you actively increase the property’s value yourself. Instead of just waiting, you could take a large 20-acre parcel and go through the legal process of subdividing it into four smaller 5-acre lots. Often, the combined value of the smaller lots is significantly higher than the original, single property. Other examples include clearing a portion of the land for a future home site or getting permits approved for a septic system.
While less common as a primary profit strategy, you can sometimes generate minor income by leasing your land to a farmer or for recreational uses like hunting. Regardless of which path you choose, remember that land comes with its own set of carrying costs you must budget for.
The Hidden Ownership Costs: What You'll Pay For Besides the Land
Unlike a stock that can sit in your portfolio for free, owning land comes with yearly expenses. The most obvious is property tax, which you’ll pay annually just like you would on a house. This is one of the key risks of investing in undeveloped property; it’s a constant cash drain you must budget for until you sell. Raw land also typically lacks the tax benefits of owning land with a home, like a mortgage interest deduction.
Beyond ongoing taxes, your initial purchase will involve crucial one-time fees as part of your due diligence. You’ll almost certainly need a survey, which is a professional service that creates a legal map of your property’s boundaries. This ensures you know exactly what you’re buying and helps avoid future disputes with neighbors. You may also need a “perk test” to see if the soil is suitable for a septic system.
Finally, some land parcels, especially those in planned developments, come with their own version of homeowner association dues. These fees might cover road maintenance or shared amenities. Factoring these expenses into your budget from day one is critical for calculating your true potential profit.
- Annual Property Taxes
- One-Time Survey Fees
- Soil/Perk Test Fees
- Potential HOA/Community Dues
- Liability Insurance
Your First 3 Steps to Becoming a Smart Land Investor
You’ve moved beyond the myth that all land is a good investment and now see the real path from a patch of dirt to a strategic asset. That knowledge is your foundation. Here are your first three steps to buying a plot of land:
- Define Your One Goal: Is this for a future home, recreation, or a long-term investment?
- Set Your Total Budget: Know your numbers for financing a purchase, including the price plus a 10% buffer for costs like surveys and taxes.
- Find a Specialist: Start looking for a real estate agent who focuses on land, not just houses.
Purchasing land as an investment isn’t a race won by the fastest buyer, but a journey rewarded by the most prepared. With a clear goal and a solid plan, you are no longer just hoping for appreciation—you are creating the conditions for it.