10 Tips for Developing Raw Land


Understand the drawbacks

Although investing in raw land can be lucrative, there can also be a downside. Raw land cannot be depreciated and there are few tax advantages associated with it [source: Auito].

Purchasing raw land is considered a long-term, illiquid investment. Even if you begin developing it immediately, it may take a long time before you reap any profits. Selling it fast is usually not an option.

There is also a risk of losing money on the resale of raw land. This is particularly true if you choose poorly or fail to fully evaluate the parcel. Unforeseen events such as a slowing economy can also affect your sales price and how fast you can sell it.

Negative cash flow can be a problem. Investors sometimes find that they owe more for the land than they are able to generate as income. Others plunge in head first, spending more than they can possibly get in the resale.

Banks consider raw land purchases to be speculative investments. They often generate little income and the cost of development can be high. If is often better to see if you can get financing through the property seller. Typically they will accept a lower down payment and provide financing at a lower interest rate.