Land Flipping is a fantastic way to do real estate with fewer headaches yet still bring in good profit.
Most real estate investors don’t typically think about raw land when it comes to turning a profit. Their focus is generally more on fix & flips or owning rental properties.
Land flipping is when an investor buys an undeveloped piece of land, and then resells it at a higher price. The investor can make improvements to the property, but it’s common to resell the land without doing any work on it.
What is Land Flipping?
Despite being a full-time real estate investor for 20 years, and having done 400+ fix & flips, I didn’t really understand land flipping.
I’d always considered it a liability as it doesn’t produce any sort of cash flow but still carries costs, such as taxes.
However, in the past few years, I’ve done a bunch of land deals, and I think it’s one of the best investment strategies out there now.
Land flipping often falls under the radar for a few reasons:
- Lack of HGTV spotlight – there isn’t a fun “before and after” when it’s just dirt.
- Less profit than a fix & flip – the ROI is incredible on land deals, but in general
- Most people have some understanding of residential real estate…but few have ever dealt with raw land
How Does Land Flipping Work?
Here are the main steps of a land flip so you can get a feel for how it goes:
- Market research – Research state and local laws, as well as if the market factors are conducive to profitable land flips.
- Send postcards – Put together a list, filter & sort it, then load it up into a direct mail service provider.
- Receive calls from leads & make offers – Have calls go to a pre-recorded voicemail greeting that IS NOT your cell phone. Then only call back the interested ones.
- Make offers – It’s possible to put out offers with your postcards or email each owner an offer.
- Research & establish values – After an offer gets accepted, put in the full research to make sure the property is actually a good buy.
- Closing – Use a title company (more expensive) or do it yourself (better for smaller properties).
- Sell the property – I prefer hiring an agent that works exclusively with land. It’s faster and they know the market better. I can get back to finding more deals.
What Are the Benefits of Land Flipping?
As I mentioned above, land flipping is now a favorite strategy of mine. These days, I’ve actually been doing more of them than fix & flips. In fact, since they’re relatively simple to pull off, I’ve been getting my pre-teen boys working on deals themselves!
Some of the benefits of land flipping are:
- Good profit available – While you’re likely to get less profit per deal than fix & flip, the returns are still amazing—especially when you consider the total investment required is much smaller.
- No rehab – That means no dealing with supply costs, contractors, construction deadlines, unexpected costs, and more. This rehab is the #1 reason fix & flip deals fail.
- Smaller investment – Even low-end fix & flip projects require $100k – $300k for the purchase, rehab, and loan costs. I like land flips in the $25k – $50k range (but you can definitely do much smaller than that if you want).
- Little competition – As covered above, few people even know that land flipping is a profitable way to invest. Houses always have a lot of competition, but there’s more land and fewer buyers.
- Small deals and larger deals require the same work (within reason) – Since there’s no rehab, it requires the same effort to flip a larger piece of land as it does a small one. Of course, if it’s a million dollar property, you’ll have trouble with buyers…but within reason, this point holds.
- Flip anywhere – I have yet to flip a land deal in Utah, the state where I live.
- Fast – Most of my deals have moved from postcards sent to profit in under 3 months. I’ve even had some be around 30 days! Compare that to a fix & flip where 5-12 months is pretty standard.
- Overall…less can go wrong! – Overall, there are a lot fewer moving parts than most real estate deals. There’s less money involved, meaning less risk. That all means fewer headaches and a higher likelihood of profiting.
What Are the Risks of Land Flipping
While the benefits outweigh the risks (in my opinion), every real estate investment carries with it some risk.
Here are a few of them:
- Less established market (harder to sell) – With residential real estate, houses are in high demand. Even in a buyer’s market, the seller can lower the price a little and still sell it off. It is possible to have zero interest in a piece of land. However, I’ve been able to sell all my plots of land in reasonable amounts of time.
- Ongoing costs – Pretty much all real estate carries ongoing costs, and land flipping is no exception. These costs are mostly in the form of taxes.
- Active Investment – Finding deals, negotiating, establishing values, and finding & working with a land agent all require active management. It’s still less work than managing a contractor for a fix & flip, but more work than if you were funding deals or investing in stocks.
How to Get Funding for Land Flipping
Of course, the biggest question with any sort of real estate investin is where are you going to get the money for it!
Here are a few of the more common ways to get financing for land flipping deals!
Pay For it Yourself
One of the best parts of land flipping is that it’s so much cheaper to get into than most other types of real estate. In fact, I’ve done deals with incredible ROI that cost me less than $5k for the entire deal.
No outside financing, no borrowing, nothing.
Of course, I also understand not wanting or not being able to fund those types of deals. I also really like to focus on deals that cost $25k+ because with no more effort, you can bring in bigger paydays.
There are a number of ways to pay for a deal yourself without having to pull cash out of your bank account. Here are a few:
- Home equity line of credit – A line of credit with your house as collateral. These typically get you the best rates for a line of credit.
- Pull equity out of your house – If you’ve got equity, you might be able to refinance and start with a nice nest egg for deals!
- Self-directed retirement accounts – If you’ve got a self-directed 401(k) or IRA account, you can use those funds for real estate. The profits are required to go back into your retirement account, so whether you want to do this will depend on your goals.
- Credit Card Financing – I know…you probably cringed at this, but here me out. There are brokers that can give you cash advances on your credit card. Often, you’ll pay an origination, but then also get 0% interest for 6-24 month terms!
This type of funding comes from a single individual. You can find people who do this in real estate investment groups (in person or virtually). There are also services on line that help line up private lending with individuals. Simply head on over to Google and type in “private lending in [AREA].”
You will also likely get hard money companies showing up, but that is another great source of funding.
Hard money is basically a more established form of private lending. These are usually companies that have set evaluation processes, personnel to help you, set lending criteria, and established processes for repossessing the property in the event of default.
Many hard money lenders have areas of focus, such as high-value deals or only fix & flips. There are many out there that do fund land deals as well.
Friends & Family
Do you have an aunt or a brother who has some extra money they want invested? Try using an approach such as “I’m working on a real estate deal and I was planning on going to get a loan from a hard money lender. However, before I do, I wanted to see if you’d be interested in funding the deal yourself.”