The decision to buy or lease is one that transcends real estate. There are always advantages and disadvantages to each path. The right direction is dependent on each individual circumstance, but an informed opinion generally results in a favorable result. In this regard, when it comes to the matter of land purchasing & leasing understanding the nuances is paramount.
Buying a property traditionally involves purchasing both land and a commercial or residential structure that sits upon that land. Sometimes it involves a land purchase with intent to build. For other reasons, it can involve a land purchase investment with no intent to build commonly known as land banking. In any case, the result is that you become the owner of the land and the physical structures on that land. The biggest advantage here is the simplicity and security of your investment in real estate.
A different arrangement involves separating the land and the property structures. In this unique situation, the property owner seeks to own the structures while leasing the land from a different party. The most obvious advantage of this arrangement is that the buyer can enter ownership at a lower price point because the land lease usually costs much less than the purchase of that same land.
The Advantages of Buying Land
When a buyer seeks a land purchase, they are setting up a foundation for building equity and wealth. Owning land is a hedge against inflation. Buying into a fixed-rate mortgage ensures a stable and unchanging monthly payment that won’t change as the average price of goods and services increases. This leveraged arrangement means that eventually, your mortgage payment could be less than that of a monthly rental payment if you are in a hot real estate market.
Long-term real estate values generally increase over time, so that while you may incur temporary losses in assessed property value as the market changes, the worth of your property trends upwards through inflation and economic recession. A final consideration when you sell a property in which you also own the land makes the transfer much simpler and generally holds more profit than if the land was leased.
How to Purchase Land
Purchasing pure land can be a complex process, so it’s best to consult with an expert before signing any contracts. Some issues to understand involve local zoning, development prospects, and long-term potential. Owning land can be a solid way to diversify your portfolio, so it’s certainly worth exploring your options.
Do Your Homework
It pays dividends to heed the advice of an expert on land acquisition, but it also makes sense to do some of your own research. When you do decide on a consultation, you are likely to receive some of the following information regarding your potential purchase:
- Zoning: Are you specifically looking for commercial, industrial, multifamily, medical office, retail, or something else? You need to consider the options available based on local zoning laws.
- Utilities: Will this location have access to water, sewer, gas, and electricity? Will you need to invest in utilities?
- Environment: Make sure to review public records and have an environmental assessment done. A basic understanding of the geology can pay dividends down the line.
- Easements: Knowing who has access to your property may affect the plans you have for the land. Will you be able to avoid possible intrusions onto the land in the future?
- Demographics, Growth, and Transportation: Depending on what type of future you have planned for a piece of land, you may want to consider how easy or hard it may be for future tenants and their employees to reach their place of work each day. Will it be a viable location for commuters?
- History: Who is the current owner? How much did they pay for the land? What are the taxes? Who holds the deed? Knowing these things can help you make an informed decision.
Contact Royal Commercial Real Estate to learn more about land purchasing.