New investors typically hear about house flipping from popular TV shows. But, people can flip land, too. As such, many investors have asked me over the years: is flipping land profitable? Yes and no. While flipping land can be profitable, it offers far lower profit margins than flipping single-family homes and requires massive marketing efforts to find motivated sellers.
Furthermore, while holding land, you don’t receive any income despite still needing to pay property taxes.
In this article, I’ll expand on the above and cover the following topics related to flipping land:
- What is Land Flipping?
- Is Land Flipping Profitable?
- Tips to Successful Land Flipping
- Flipping Homes vs Flipping Land
- Final Thoughts on Flipping Land
What is Land flipping?
At its core, flipping land closely resembles flipping houses—with one major difference. In a house flip, investors purchase a property for less than market value, rehab the property, and then sell it for a profit.
When flipping land, investors do the first and last part but skip the middle. In other words, land flippers buy a parcel of land for significantly less than market value and then resell it for a profit. While this final sale results in a profit, land flipping does not require the additional work (and risk) of actually renovating a property. While you may need to put some aesthetic work into a parcel prior to resale (e.g. basic landscaping), you won’t need to undertake a complete renovation as you would with a home flip.
Bottom line, land flipping only includes two basic steps:
- Step 1: Purchase a parcel of land for less than market value.
- Step 2: Resell the same parcel of land for a higher price and realize a profit.
However, while land flipping only includes these two basic steps, far more work needs to go into this investing strategy to do it successfully, which I’ll discuss in the following sections.
NOTE: Do not confuse land flipping with a “land flip.” Land flipping entails an arm’s length transaction between two unrelated parties (buyer and seller). On the other hand, a land flip is a fraudulent real estate practice involving collusion between a land buyer and land seller to artificially inflate a parcel’s price above market value.
Is Land Flipping Profitable?
Here’s the next logical question: can you actually make money flipping land?
If you asked me years ago, I’d say absolutely not. From an accounting perspective, a parcel of land represents an asset. However, for real estate investors, it really functions more as a liability, as an empty parcel of land:
- Does not generate any income.
- Requires payment of regular expenses (e.g. property taxes).
In other words, owning land acts like a money vacuum: a lot goes out while nothing comes back into your pocket.
However, over the past few years, I have worked with a group of investors that has done very well flipping land. And, while I still prefer flipping houses for a variety of reasons, these investors have demonstrated to me that, yes, flipping houses can be profitable. It remains a low-margin, high-volume game for successful land flippers, but with the right approach, you can make good money.
Tips to Successful Land Flipping
As stated above, successfully flipping land entails more than simply understanding the fundamentals of “buy low, sell high.” Rather, profitable land flippers share a few key techniques that drive profits.
As referenced, generating significant profits flipping land relies on tremendous volume. A single deal typically yields only a few thousand dollars in profit, meaning that to make a living, investors need to complete dozens (or hundreds) of deals per year. To accomplish this volume, successful investors have outstanding mass marketing strategies.
In multiple markets, they make hundreds to thousands of offers to lists of motivated sellers, recognizing that every hundred offers may only result in one or two secured deals. And, they build their buying strategy into this marketing. For example, if the tax-assessed value of a parcel is $30,000, they may include an offer in the marketing solicitation to purchase it for $3,000. If accepted, they can turn around and sell this same parcel for $6,000—still far below tax-assessed value—grossing $3,000 on the deal.
As the above example illustrates, the typical land flipping deal does not yield a huge profit. However the gross profit percentage (100% return in the above example, which is not uncommon), means that, with significant volume, investors can command significant returns.
But, to generate this volume, investors need to A) have an effective marketing strategy in place, and B) have patience. You cannot implement a multi-state, multi-market mass marketing campaign overnight. And even once you get such a system in place, it will take some time for it to gain traction with multiple deals built into a pipeline.
As with any successful marketing campaign, building a land flipping one depends upon a thorough database and lead-tracking software program, and Do Hard Money’s Investor’s Edge software can absolutely meet these requirements.
Network of real estate agents used to working with land
While an outsider may view all real estate agents as having the same skill sets, like any professionals, they all have their own specialties. And, buying and selling land entails a whole different suite of skills and knowledge than just selling homes.
As such, successful land flipping requires a team of real estate agents who specialize in land. These individuals provide key insight on potential deals, and they will ensure that the transactions go smoothly.
Furthermore, due to the volume requirements for profitably flipping land, most investors need to solicit deals outside of their local markets (and often outside of their own states). And with such low-margin deals, you cannot afford to fly or drive all over the country to check out potential deals, as these travel expenses would likely negate any slim profits on a particular deal.
As a result, you need to build a network of land-focused real estate agents in every one of your target markets. That way, they can serve as your “boots on the ground,” researching potential deals and facilitating remote closings, letting you reap the benefits of a land flipping strategy from your own home or office.
Flipping Homes vs Flipping Land
As I’ve tried to make clear in this article, you certainly can make money flipping land. But, personally, I still prefer flipping homes for the following two reasons:
- Profit margins: With successful home flips, investors can net tens of thousands of dollars (depending on market and specific deal). And, while these deals require more renovation-related risk, these higher margins mean house flippers can potentially make a living flipping a handful of properties every year—not the dozens required to make a good living flipping land.
- Strategy flexibility: If you can’t flip a parcel of land, you’re stuck paying property taxes while not generating any income. On the other hand, if a home’s ARV numbers don’t support a flip after you’ve already completed the renovations, you can simply transition to a BRRR strategy and still profit on a deal.
Final Thoughts on Flipping Land
Yes, opportunity exists to profit flipping land. But, you absolutely need to know A) what you’re getting yourself into, and B) the techniques necessary to successfully flip land. As such, if you decide to pursue this strategy, be sure to implement the lessons learned in this article.