The benefits of investing in an empty plot of land

When buying property, you may have weighed up the pros and cons of investing in commercial, residential, and industrial property. But have you considered investing in an empty plot of land?

We find out how this is different from other types of property, and we outline some of the most important points to consider when pursuing this kind of investment.

Tip: If you’re not interested in investing in property, you might consider some of these alternatives.

Investing in open land is different to other property

Andrea Tucker, director of MortgageMe, notes that most vacant plots cost significantly less than developed land. This means that you’ll be able to pay more towards your bond and save substantially on interest.

“However,” Tucker says, “it’s more difficult to secure a bond on empty land, due to the inherent risk in buying something with no immediate income stream.” Although the bond would apply to a secured asset, it’s considered less secure than a developed property.

Tucker explains that banks are unlikely to grant you a 100% bond, and you will also need a larger deposit to secure the land.

Finding vacant land in built-up or popular areas is another challenge, says Tucker. Semi-vacant land may be an option, but you’d need to remove existing buildings before you can proceed with your plans.

“You can consider investing in suburbs adjacent to your area of preference, where vacant land is plentiful and you will hopefully benefit from appreciating value,” says Tucker.

In this instance, it’s essential to discuss the potential future value of the property with as many professionals as possible. You need to ascertain whether the land is likely to appreciate in the short- to medium term, otherwise, you won’t reap the benefits.

Tucker explains that one of the perks of investing in an empty plot of land is that you have a clean slate with which to work when it comes to designing your building - be it residential or commercial - and the possibilities are endless.

Considerations when investing in an empty plot of land

Buying an empty plot of land necessarily involves a significant amount of investigation. In other words, Tucker says, do your homework.

“This isn’t something you do on a whim or based on a single individual’s advice. To differentiate between a good asset and a potential liability, make sure you’ve talked to lots of people, done your research, and asked any potential questions you may have,” says Tucker.

She suggests you decide upfront how you intend to use the land, and the essentials it should have. You need to consider, among other things, the amenities in the area, property prices, security, traffic, rates, and taxes.

“Ensure the property is zoned for your plans. If necessary, you can apply for re-zoning. But there’s a cost to this and you may experience delays,” says Tucker.

She notes that if the land has never been developed, it’s sensible to hire a survey professional and pay for a geotechnical engineer to assess the soil and underground rock mechanics.

“Get advice from an architect or two, and quotes from a few builders once prospective plans are drawn up. It’s important to take your time with this step so that you can ensure you’ve got a handle on all potential costs to develop and build,” says Tucker.

She adds that you should keep asking yourself whether your investment is secure, based on the outcome you’re hoping to achieve. 

Are there extra costs you should consider?

Tucker says that additional rates apply to vacant land, and these are enforced from the point that you take ownership.

“You may not occupy your land immediately, but be prepared to still pay rates and fees for municipal services, such as access to garbage collection and sewerage.”

Because the value of the property is less than it would be if it was developed, the rates will be more moderate, Tucker notes. However, the moment you start developing, these rates will increase in line with the value of the property.

Not sure about investing in land? You can funnel any funds towards your retirement. Find out more here.