Time to read : 4 Minutes
Is A Block Of Land A Good Investment?
Deciding whether any specific investment is a ‘good’ investment is personal.
To explore whether a block of land is a good investment, you need to think about whether a block of land is a good investment for you – and that can only be assessed by knowing your individual circumstances, as well as information about the land itself.
To help you answer the question, consider the pros and cons of investing in land:
Pros of buying a block of land for investment
compared to an established investment property, land is typically available at a lower purchase price, and may not require a loan
lower stamp duty costs
less competition, so more opportunity to access a good price
buying land before building allows you to spread the cost over a long period of time, if needed
lower maintenance costs for vacant land, compared to developed land
lower insurance costs for vacant land
rezoning can mean a rapid value increase.
Cons of buying a block of land for investment
finding finance can be challenging
undeveloped land (unless it in a farming zone and can be used to agist livestock or cultivate crops) doesn’t generate income
undeveloped land may not grow in value as quickly as a traditional investment property
you still need public liability insurance (in case anyone is injured while on your land)
local councils may have regulations about slashing and mowing undeveloped land, which means ongoing maintenance costs
you may have to erect and maintain fencing to prevent trespassers (depending on local council regulations)
if you decide to sell your land, there may be fewer potential buyers
you may have to pay capital gains tax if you sell your land for a profit.
Limits to available finance
How much you can borrow depends on a variety of factors.
If you’re only buying land, not developing it, the loan-to-value ratio you can access depends on the location and size of the block.
If you need finance to buy land to develop or build on, applying for an investment loan, or cost plus construction loan, can be difficult – with many lenders not even offering the latter at all. You can expect to have to meet strict lending criteria and be in a strong financial position. If the land is on a bank’s list of postcode restrictions, you may not qualify for a mortgage, which will make it hard to build.
What makes a great block of land?
land appreciates in value, while the value of a home structure depreciates, so choose a block with the greatest potential for capital growth
within new housing developments, blocks situated on a quiet street or opposite a park or school will appreciate in value faster
avoid a block with a narrow frontage.
The bottom line
Be careful if your land buying strategy involves a plan to pay cash for a series of small blocks of land over a long period of time, then cashing them all in to put towards another more significant property purchase. The more remote the block, the fewer the potential buyers. Selling land can be a slow process and, depending on the infrastructure in the surrounding regions, it may not appreciate much at all.
If you get it right, though, and buy land that is subsequently rezoned to become more valuable and sought after, land can be a lucrative investment with huge returns.
Being aware of your lending limitations is vital. The most beautiful block of land imaginable won't be a great foundation for your dream home if you can't get the finance you need to develop it.
Go deeper:
Is buying a duplex for your first home a good idea?
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
