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Wondering how to calculate the land value of a property for real estate investing? This guide will give you all the basics plus a few tips for making successful land purchases.
Unfortunately, there’s no set standard for calculating the value of land-only property. It’s difficult to find comparables as there are a number of factors that can affect the desirability, and therefore value, of land.
If you’re thinking about purchasing land for a real estate investment, keep in mind that you’ll be taking on considerably more risk than investing in a property that’s in an urban setting. But don’t give up hope just yet! We’re going to talk about the different factors that affect land values and a few tips for how you can pivot less-than-desirable land into a profitable deal. Let’s dive in.
Factors that Affect the Land Value of Property
There are so many variables that will affect how much the property you’re considering is worth that it’s hard to nail down every one. Below are a few of the major factors but keep in mind that these might seem unfair as they’re mostly out of your control.
But there’s an upside to this! Having little comps might prove to make calculating a solid number difficult for you, but this also gives you a little wiggle room to get creative. Instead of looking at the factors below as frustrating hurdles, consider these more like a checklist for how to market your property once you’re ready to sell for a profit.
By considering all of these variables, you’ll have a better understanding of the overall marketplace and a little more knowledge about how you might improve the potential value with a bit of clever marketing.
Location, location, location. As the old saying goes, it really is everything in real estate. While the location might not be important to you if it’s a really good deal, it’s essential to factor in how the location will affect your buyer. So how does the location affect the overall value? Here are a couple of examples:
- Rural properties tend to be less in-demand and therefore have less value. The caveat is, of course, if you’re focusing on a specific niche of buyers like homeowners who are interested in large plots of land or farmers.
- Properties located in urban areas of cities or towns with stable economies will have a higher value than those in more depressed areas.
Privacy and Security
Rural properties tend to be viewed as more secluded and, therefore, more desirable for those looking for privacy. Consequently, if you’re considering purchasing land that’s off the beaten path to flip, consider how someone looking for rural space like this might
Distance to Important Places
Empty properties close to hospitals, schools, transportation, and shopping centers are often more desirable and, therefore, have a higher value than those that require long trips for everyday needs like groceries or the kid’s school.
How the Land is Used
Does the land come “improved,” or will you need to invest more money to make a profit? Properties that are considered to have improved land will have utilities run out to them like electricity, water, fire hydrants, and sewage.
Unimproved land is essentially a plot of untouched dirt. While unimproved land may seem like a cheaper deal, the costs to make it desirable can reduce your potential for profits. Not only will you need to have utilities installed, but you may also want to do soil tests to ensure that the dirt and bedrock underneath it can handle building construction.
While improved land is considerably more valuable, that doesn’t mean unimproved land can’t be flipped for a profit. If there’s a good deer population nearby, this could be a useful piece of property for hunters. If there are trees or other natural resources, timber and mineral rights could end up making it a very valuable plot of land.
How to Find Home Land Value Data
While finding comps is pretty tricky when it comes to land-only deals, it’s not impossible. Again, I want to emphasize that having no comparables means taking on more risk, so don’t jump into a deal just because it’s cheap.
Below I’ve pulled a list of average land values for the areas where Do Hard Money operates. You can see how much the value fluctuates, which is due mainly to the factors above. Keep in mind that these values are subject to change based on how hot the marketplace is for land, but nonetheless, these are still a good guideline for what to expect.
|City||Average Sale Price of Land-Only Lots with At Least 1 Acre|
|New Orleans, LA||$399,806|
|St. Louis, MO||$800,026|
One other thing to keep in mind: Land value does not equal selling price. You might balk at the $2 million price tag for a plot in Newark, but the more desirable you can make a plot of land, the higher chances you have for commanding a similar price.
Calculating the value of land-only properties is overwhelming for even the most seasoned real estate investors, so don’t feel frustrated if this feels over your head. Remember that real estate investing is just like any other business; if you can find ways to market a potential land deal to the right buyer, then you could generate some excellent profits. Look at the potential land value through the eyes of someone looking for a spot just like this and see if you can find ways to raise the value on your own.