Property has been a popular investment vehicle for a long time. In recent decades, yields have been rewarding, to say the least, whether from capital growth or rental income.
However, that’s not the only way you can make money from property. Have you considered buying land that can be developed for housing or commercial use?
Land is a valuable currency, and the possibilities of development are virtually endless.
Given our current national housing crisis and the political will to build more homes quickly, land is in particularly high demand for residential housing development. But don’t discard other, perhaps less obvious uses, such as office or retail space, parking or leisure facilities.
So let’s look at why buying land for development in the UK could be a smart move and how to go about making it a reality.
Why buying land for development is a good idea
Investing in land over, let’s say, stocks has many benefits. First of all, there are things you can do with it to increase its value. Unlike stocks, it’s a physical asset. While you can buy it and just wait until the price has risen and resell it, like you would do with shares, there are other options.
There are many different ways you can use this popular commodity to make money. We will discuss the various investment strategies later.
Having options is always an advantage, because it means you can choose the one that will give you the biggest profit. Or if you’re new to land development, you can look at options that will make it easy for you to get started.
You might need some time to learn the ropes before you go in for the big projects. And investing in land can help you make money while you gain experience. For example, rather than buying it to build a property, you can secure planning permission and then sell it on.
This will increase the value of the plot but will be easier than building the property. But you will be learning vital lessons about the planning permission process that you will need once you decide to go the whole way.
Unlike other forms of investment, land isn’t as much impacted by economic circumstances, such as inflation. Of course, this doesn’t mean that prices won’t fluctuate, but land is unlikely ever to become worthless.
This is partly due to the limited supply of it. There is only so much land to go around. And as the demand for it increases, prices will go up. So you can make a profit from value appreciation without having to do a thing.
And you can achieve a stable income by renting out the plot, or the property on it. It can also be used for agricultural activities, for which you can rent it out.
As you can see, investing in land for development has a lot going for it.
However, as with everything, there aren’t just advantages. Buying a plot for development does also carry risks, which you should be aware of.
Disadvantages of purchasing land for development opportunities
Buying land for development means having to invest money upfront. And depending on the size or location of the plot, these costs can be quite high.
If you are planning to develop it, you have to invest more money upfront. So you will need a starting capital to get into buying land for development.
While it won’t become worthless, prices will fluctuate depending on market conditions. This market risk should be taken into account.
Unlike with shares, any money that is tied up in land isn’t that easy to access. Selling it can take time, because you first have to find a buyer and then go through the selling process, which isn’t always quick.
Although buying land in order to develop it can bring large profits, you are dependent on regulations set by local councils. The most obvious is that you will need planning permission if you want to develop the plot you have bought.
And regulations can change, which means you have to keep up-to-date with such changes.
However, most of these risks can be mitigated by good preparation and planning. So while you should be aware of these risks, don’t let them put you off buying land for development.
Investment strategies to consider
Before you get carried away with the idea and start looking for development plot to buy, it’s a good idea to decide on a firm investment strategy and the goal you wish to achieve with the land that you eventually purchase.
Here are 7 well-known strategies to consider.
1) Buy and sell
The simplest way to make a quick profit is to find land to buy below market value and sell it on as soon as you’ve found a buyer who is prepared to pay a higher price. No additional work is required on your part; you’re simply flipping the plot.
This is a great strategy for beginners who want to tip their toes into investment in land, because all you need is the starting capital. Or if you want to start a side hustle to build up money to get into property investment.
2) Buy and hold
Another option is to buy land and hold on to it for the time being, in the hope that it will appreciate in value and can be sold to a developer at a profit at a later date. This is a popular investment strategy for property in up-and-coming areas.
It’s another good strategy for newcomers or side hustlers because you don’t need to invest time and effort and there is no experience needed either. All you need is the money to pay for plot and a good deal of patience.
A nose for the right areas will also be useful, because with this strategy you want to buy land cheap but in an area that is on the up, so that the value will increase quickly.
3) Buy and rent
You can also buy a plot and rent it out. There are many uses for land, for example as a paddock to keep horses. Depending on the size of it and the quality of the soil, you could rent it to a farmer to grow crops.
This is a good way to get a regular income from your plot of land without having to spend money, time and effort to develop it first.
4) Buy, get planning permission and sell
Land with planning permission is much more valuable to potential developers, so it pays to obtain consent, or work closely with an interested developer to achieve the best outcome for both parties.
While it will take some time and effort and money to get planning permissions, it’s a cheaper option than to also develop it. And the profit margins can be quite good with this strategy.
This is also a great way to get experience working with planning authorities and prepare for the next step: developing the land yourself. If that’s where you want to get to.
5) Buy, develop and sell
If you are keen to have an input and keep control of the development process, you can buy the plot and develop it yourself.
Whether you choose to build houses or set up a vineyard, obtaining the correct planning permission is key to a successful investment.
With this strategy you have a potential for huge profits. As long as you do your research, understand the market in the area and keep to your budget, you are on for a winner.
And because the options for different developments are numerous, so are the options to make a profit.
6) Buy, develop and rent
Another way to make profit from buying land for development is to develop the site yourself and then rent it out. You may decide that you get a better return on your investment by leasing or renting it out rather than selling it on. This can apply to housing as well as retail units or commercial space.
7) Buy, develop and hold
In this approach, you buy the land and develop it yourself with the goal of keeping the end product for your own use. You might want to set up your own land based or other commercial business or build your own dream home.
If you have very specific requirements or just can’t find what you are after in the property market, then this is a great option to get what you want.
It can be more stressful and complex than just buying an existing building, but it can be worth it.
How to buy land for development
Now let’s look at how you can get hold of land, no matter which of the above strategies you want to follow.
Before you can buy land, you have to find it. There are various options you can use. Ideally, you want to use a mix to ensure you find the plot that is right for your needs. These are the main ways to find land to buy:
- Websites specialised in selling plots
- Estate agents, including specialised land agents
- At auction
- Local government authorities advertise land to buy on their websites
- Ask landowners, such as farmers directly if they are willing to sell you some land
Once you have found the plot you want, you want to make sure everything is in order. Like with a property, there are independent surveyors that will carry out surveys on the land.
Such a survey report can highlight issues with it, such as boundary and access issues, what trees and buildings are on it, what, if any, underground utilities are present, etc. This can be very useful, because it will give you an idea of how best to go about developing the land.
If you are planning to build on the plot, you should also look into gaining planning permission, if the land doesn’t come with it. Because applying for planning permission involves costs, you might want to check with the local council to find out how likely it is that permission is granted before you buy.
You can buy the land and hope for the best, but if permission is refused you are stuck with a piece of land you can’t do anything with. Of course, you can sell it on, hopefully for a small profit.
If the local council signals that planning permission is likely to be granted, you can go ahead with the purchase. The conveyancing process is similar to buying a house. Your solicitor will gain as much information as possible about the plot of land, including through searches.
This can be a lengthy process, but it’s important that you know all there is to know about the plot of land to avoid any nasty surprises. Once the sale has been completed, you are good to go to action your chosen strategy.
Conclusion
Buying land for development is a great way to invest your money. There are many different strategies you can follow to make your land purchase profitable.
From a simple flip (buying it and selling it on for a profit) to developing the plot and selling it or renting it out, there is so much you can do with land. That’s why this method of property investment can work for everyone, be it a seasoned developer or a beginner.
There are many advantages over other investment methods. For one, it can give you a stable income and there is the potential for large profits to be made. But of course, there are also disadvantages, such as not being able to access the cash quickly that is tied up in the land.
Once you have decided that investing in land for development, you have several options on how to get hold of land. This includes buying at auction, using an estate or land agent and using specialised websites.
Investing in land for development can be complex but also very rewarding. So why not give it a go.
