When businesses choose to invest in land, it brings with it a great deal of responsibility. Land is perhaps one of the world’s most misunderstood investments, one that can bring a great deal of stability, or a host of problems. Before you decide to purchase a parcel of land, make an informed decision so that you best understand what you are getting into.

Warning Signs to Look for When Investing in Land

Before you take your checkbook out, be on the lookout for these warning signs.

Risks to Consider Before you Buy

1. Zoning

The first thing you’ll want to know about the property is how it can be used. Once it’s clear how the property is zoned (commercial, residential, mixed, tc), you can decide how to use it. You’ll want to ensure that the property is free from zoning restrictions, or that those restrictions don’t pertain to you. You’ll also want to inquire about any usage restrictions before making the purchase.

2. Taxes

While not all that common, sometimes properties come with an enormously high tax bill. The tax burden should be appropriate for the value of the property. For example, if the property is worth $10,000, but has a $4,000 tax bill, that amount is entirely too high. Ask about the tax burden before you make your purchase.

3. Location of the property

Properties located near bodies of water can be considered prime real estate, but are also prone to flooding. This increased risk of flooding can make your land extremely expensive to insure. You can easily check to see if the land is located within the floodplain using FEMA maps.

4. Is the property landlocked?

It seems unlikely, but the US is home to literally thousands of landlocked properties, pieces of land that have no accessible roads to get to them. Sometimes, they’re surrounded on all four sides by other private property, making them essentially useless. With no legal access, you might have to establish an easement with your neighbors in order to enter the property.

Building restrictions

Municipalities will, at times, declare a moratorium on new construction for a certain duration. This means that building anything will not be permitted until that ban gets lifted. You can contact your local planning and zoning department to see if any building restrictions exist in the area.

Access to water supply

If the property does not have reasonable access to public utilities, it may not be considered buildable. You may have to drill a well or have water trucked in for the property, which can result in significant cost.

Property clean up?

Is the property or surrounding area littered with scrap metal, tires, or other junk? People are often keen to turn vacant land into their personal dumping grounds. Clean can not only be expensive – it can be an ongoing problem, particularly if individuals continue to dump garbage in that spot. The last thing you want to deal with is a lengthy cleanup project.

The trick to buying land is to understand why it’s for sale in the first place. Is the property cut off from access, with no roads to get to it? Are there environmental restrictions that might prevent you from building your dream home on the land? Buying land can be complicated. The old adage “if it sounds too good to be true, it probably is” is especially important when considering investing in land.

You’ll find plenty of property for sale in Michigan that can offer worthwhile investment opportunities.

Don’t just get wrapped up in the idea of owning land. Use these tips to make an informed decision and arm yourself with the proper tools to navigate purchasing land. Don’t buy a property and then find out about looming problems when it’s too late.

Conclusions

This report was made to give an overall review about the benefits and the issues in the analysis of real estate in a mixed asset portfolio. The overall conclusions obtained from this report are the following:

  • Real estate can be used as a diversification tool for investment managers
  • the correlation of RE with the other asset classes decreases with the increase of investment horizon
  • With the use of RE in a MAP the efficient frontier moves up and left opening new investment opportunities
  • The classical assumptions do not that into account the market frictions
  • Investment horizon should always be taken into account as to avoid misleading results.
  • Transaction costs have to be taken in to account in the short run while in the long run, they are irrelevant.
  • Real estate investment better applies to long term investors.