When it comes to investing in real estate, most people immediately think about buying single-family rental homes, apartment complexes, or commercial real estate that can be leased to a business owner or corporate tenant. And though there’s nothing wrong with any of these investments – they can make investors very rich – they take a lot of time, work, and ongoing financial input to maintain. If you aren’t crazy about such a hands-on approach, then you may want to pursue another type of real estate investment. In particular, you may find raw land enticing.
The Buy and Hold Misnomer
The average real estate investor – in other words, someone who has a full-time career in another field and invests as a way of growing wealth and diversifying a financial portfolio – wants his investment to produce a steady return. That’s why residential rental properties are so attractive. The investor puts in a certain amount of money and there’s an immediate and steady return in the form of a monthly rent check. (The same goes for a commercial office space or retail storefront.) Investors want proof that an investment is yielding value and these types of deals offer tangible reassurance.
When it comes to raw land, there’s a widespread belief among investors that it’s a long-term investment that you buy and hold for years or decades in the hope that it’ll one day increase in value and be sold. In fact, this is a common strategy. But to assume that buying and holding is the only option with raw land would be a grave miscalculation. The reality is that raw land can just as easily produce residual income while the investor waits for other opportunities to develop.
Describing raw land as a passive source of income sounds odd to many outside of the industry, but it’s actually one of the easiest and least time-intensive ways to add income-producing property to a portfolio. Once the engine is running, it requires very little in the way of day-to-day management or oversight. It’s the ideal investment for anyone interested in profitable, long-term deal. It could be the ideal investment for you.
14 Ways Raw Land Can Yield Passive Income
For the sake of clarity, we’re using the term “raw land” to mean land that is in its most natural state. The land hasn’t been cultivated, developed, or used for any sort of livestock, crop, or development. There are no improvements like driveways, homes, fences, or sidewalks. It’s land that’s been undisturbed and has unlimited potential.
While there are obviously certain zoning restrictions, building codes, and requirements for how you can use land that’s within city limits or under some other jurisdiction, there are plenty of ways to yield passive income with raw land. In this article, we’re going to explore some of the top options and how they can be used to generate a steady stream of income over many months and years. Take a look:
Depending on the location, terrain, and local restrictions, you may be able to turn your raw land into hunting land and charge people to use the acreage. Not only does this provide a hands-off income stream, but it’s a smart method of wildlife management – particularly when it comes to deer.
“In some places, deer populations are now so high that they cause long-term negative ecological effects, eating out forest understories of wildflowers, shrubs, and tree seedlings,” U.S. Forest Service explains. “Such forests are pretty obvious— consisting only of tree trunks and a few deer-resistant shrub species.”
In certain areas with high deer densities and very little deer forage, the forest may never regrow the same after the disturbance. Then there’s also the problem of too few deer. When there aren’t enough deer around to feed on certain species of plant, they can actually out-compete other species and affect the ecosystem.
If you have wooded land, you want just the right amount of deer (and other types of wildlife). By leasing your land to hunters – either to a single hunter or an entire hunting camp – you’re essentially getting paid to have your wildlife populations managed.
Camping is a popular activity in every area of the country, but many campers are growing weary of paved campsites with concrete pads, electricity, and lots of foot traffic. What they want is a private area to camp where they can relax and unwind. With raw land, you can “develop” a primitive camping site – which essentially means adding a gate with a few trails to give people access to certain areas of the property.
If you decide that you want to cater to a different type of camper – such as RVs – you’ll need to put in a little more effort and upfront work. At the very least, you’ll need some gravel driveways, designated spots, and a few hookups for generators.
Shrewd investors understand the value in buying land with strategic location in relation to the surrounding property. In particular, they know how valuable access can be and strike clever deals to generate easement-based income. Depending on the type of land you purchase, where it’s located, and what sort of resources you have, you may be able to generate long-term residual income through an easement agreement. This is especially common in areas with access to natural gas.
“In order for a driller to cross private property with a road, pipeline, fencing or other structure, certain property interests must be obtained from the landowner,” CPA Kevin Baker explains. “These interests are contained in a document called a grant of easement, which provides the driller with the necessary rights to the property and outlines the compensation to the landowner.”
Easement agreements can be signed for just a few years at a time or may last for 30 years or longer. It all depends on the circumstances of the land.
Don’t live in an area where natural gas can be extracted? Easements may still provide a stream of income. Let’s say, for example, you buy land that has a shared driveway with a trucking company that’s constantly coming in and out. You could actually approach them and ask for monthly compensation (since they’re using the drive far more than you) and require them to pay for all upkeep and maintenance of the road. It’ll only put a small amount of money in your pocket, but it could be enough to pay for property taxes and other expenses. Creativity is the name of the game!
Contrary to popular belief, ranchers don’t always own the land they operate on. They often lease land from other landowners. Some ranchers have a need for hundreds of acres, while other micro-scale ranching operations may only need 20 or 30 acres.
Renting out land to ranchers is a nice way to generate some steady income for a period of time without significantly raising your property taxes. Not only does this eliminate the need for maintaining the property and mowing grass, but there’s also very little risk associated with it. (You can generally right terms into the agreement that require the rancher to repair any damage to fence, for example.)
Wooded land is extremely versatile. In addition to being able to use it for hunting and camping, it can also occasionally be thinned out or clear-cut to harvest timber. Maturity for trees depends on a number of factors, but can take between 7 and 25-plus years to reach a point where you can harvest. But once the time comes, you can make a lot of money.
The type of trees, the maturity of the trees, the type of cut (thinning vs. clear-cut), and the current price of lumber all influence the value of timber, but it can be a lucrative endeavor. As these charts show, just thinning out pine trees that are in the 21-25 year range can bring as much as $958 per acre. Clear-cutting can yield $1,337 per acre. If you use a fictional tract of land that’s 300-acres in size, this could produce as much as $287,000 (thinning) to $401,000 (clear-cut). Obviously these are really rough, hypothetical numbers, but you get the idea.
If you own land that’s in a desirable location, you may consider renting out the land to a telecommunications company so that they can build a cell tower on the property.
Data suggests that U.S. lease holders get as much as $8.5 billion annually for the nation’s 190,000-plus cell phone towers with an average annual lease rate of $45,000.
There are obviously considerations to be made here. Cell towers aren’t cheap to build, so you can expect a telecommunications company to lock in a long-term lease (likely for decades). While this provides a steady, predictable stream of income, it also locks you in. Should you decide to do something else with the land in the future, you’ll always have to account for the cell tower and subsequent lease agreement. Adding a cell tower can also dramatically increase your property taxes, so factor this into any ROI equations you run.
In much the same way that you can lease land to a telecommunications company and give them permission to build a cell tower, you may have the opportunity to rent land out to a company that wants to install solar panels and harvest solar energy. Another option is to build your own solar farm and then sell the energy you produce to energy providers in your area.
If you’re low on time and capital, leasing the land to energy companies is the easiest route. If you have the resources, time, and desire to build out a solar business, there’s a little bit more money to be made in selling energy. It’s something to think about!
You’ll need the right type of land, topography, and climate, but you could have the option of using raw land to produce wind energy. (This is common in the Midwest and Southwest, for example.) Again, much like cell towers and solar farms, you find a company that’s interested in leasing the land and you get a regular payment in return for the real estate.
The key with wind energy is to do your research and carefully consider the implications of the lease. The company will likely want a minimum of a 20-year lease. Make sure you don’t have any plans to use the land for other purposes in the meantime.
The U.S. interstate highway system is an astonishing 46,876 miles long. To put that number into perspective, you could essentially drive around the earth twice – just on highways alone! Why does this matter, you may ask? Well, it means there are hundreds of millions of feet of frontage that have the potential to be used for advertising.
If you purchase raw land with frontage on a busy highway, interstate, or road, you may be able to generate some steady income by charging businesses for advertising space. Whether it’s leasing land to have a billboard installed or simply giving a local business the right to install a sign in a conspicuous area, you have options!
Most raw land investments happen outside of the city limits, but there are rare opportunities to purchase raw land inside of a city or in a growing suburban area. In these situations, you’ll find that you’re typically limited on how the land can be used. (Zoning is no joke!) But feel free to get creative.
If you own raw land located near a major concert venue, sporting venue, or airport, there could be an opportunity to sell parking during certain days of the year. Depending on your proximity and the amount of space you have, you could make a few thousand dollars a month on parking alone.
Most raw land investors aren’t developers, so they have no interest in building a neighborhood or constructing an office building. After all, this is a permanent investment that forever alters the land and limits what you’re able to do with it in the future. But there are ways to generate monthly income from renters without building homes. One of the best solutions is to build a tiny home park.
A tiny home park is essentially a hybrid between a mobile home park and a residential neighborhood. Because these homes have a small footprint and are typically built on a moveable trailer, they’re considered temporary structures and are usually taxed differently than permanent structures. They can also eventually be removed, which helps you retain flexibility in how the raw land is used in the future.
As Americans have accumulated more and more stuff, the storage industry has really taken off in the last couple of decades. While you may not have any interest in building a self-storage facility and competing with major brands like U-Haul, you could find a viable niche in providing locals with boat and RV storage on a corner of your property.
Depending on the storage services and features you provide and how hands-on you want to be, you could generate anywhere from $50 per month to $400 per month (per boat or RV).
Outdoor wedding venues are becoming increasingly popular. If you have real estate that’s located in the right area and has natural beauty, it takes very little to turn that raw land into a gorgeous event venue – especially if “rustic” is the target niche. By channeling out some gravel roads, building a couple of small structures, and clearing out land for scenic views, you can establish a venue that makes you a few thousand dollars per event.
Landscaping and construction companies always need land for storage. Not only do they have lots of large equipment that needs to be safely stored, but they also require space to put large quantities of dirt, rock, gravel, wood, mulch, and other supplies.
It doesn’t take much to make your land useful for landscape and construction storage. If you put in a few thousand dollars on the front end to create a viable space, you could potentially generate thousands of dollars in passive income per year.
Buying Raw Land as an Investment Strategy
As you can see, there’s ample opportunity to turn a piece of raw land into a source of passive income. The question is, how do you buy raw land and find it at a price point that allows you to generate a positive ROI?
The best option is to work with a real estate wholesaler that has access to large volumes of raw land and is in the business of selling at reasonable, off-market prices. When you work with a land wholesaler, as opposed to someone using the traditional method of listing with an agent, you don’t get stuck in the emotional, complicated process that typically exists in a normal real estate transaction. Instead, the deal is treated with a business-like mentality that prioritizes efficiency. Depending on the type of wholesaler you work with, you may even be able to secure in-house, seller financing.
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