Investing in undeveloped land can be highly profitable; the IRS allows individuals to invest in land using retirement funds through self-directed IRA accounts. Though investing in undeveloped land can be a more profitable alternative to underperforming stocks and mutual funds, not all opportunities will outpace inflation and help you reach your retirement goals. This article will explain ten criteria that should be included in your evaluation to find the best deals in undeveloped land.
Community Master Plan
Ensure that a master plan for the surrounding community has been established. The master plan should cover a radius of 40 to 60 miles around the land you want to purchase, and it should include detailed planning for streets, sewers, electric and gas services.
Projected population growth
Look for a large population growth projection from a reliable source such as the Census Bureau. Find out the reasons behind a favorable projection. You should make sure that the reason for the growth is not dependent on something that is expected to change in the near future. For example, growth projections may have been based on an airport that is now expected to close.
Consider the amount of commercial and residential development in the area. Most residential developers who have already begun residential development have completed authoritative studies, which support the population growth needed for them to sell homes, condos, and apartment buildings to make a profit. They will need additional land in that area as they continue to build.
Check with the local zoning department for any restrictions on your lot.
Proximity to large metropolis
Another key factor is the proximity of a large metropolis. Check the distance to the nearest major city such as Los Angeles, New York, or San Francisco. It should be within 40 to 60 miles from the land you want to purchase.
People and families in the big city will eventually need to find affordable places to live outside of those big cities so quality of education is important. Make sure the educational system in the area is developed from primary through college.
In addition to factor number one, make sure that those utilities and services in the master plan will be ready for a massive population growth.
Accessibility of transportation
Accessibility by train, freeway, and air is also an important consideration. Population growth cannot happen without easy access to the area for people and businesses. All three of these transportation systems should already be in place.
Man cannot live by bread alone—which means available water supply for massive growth should also be in place.
Usability of land
Lastly, the land must be level and usable. If the land has toxic waste, businesses or residential developers cannot use it. Other factors affect land usability, and therefore seek an informed appraiser and real estate broker.
When purchasing land with an IRA, remember that the IRA itself must purchase the land and hold the grant deed. All property taxes for that land must also be paid from the IRA. The self-directed IRA should be opened first with cash or funds rolled over from other IRAs, 401ks, retirement plans, and then the land should be purchased. Large tax penalties can occur if these transactions are not done properly.
Proper care in deciding when to sell or lease the land is also important. Land, especially pre-developed land, is a long-term investment and often needs to be held for a minimum of five to seven years to produce the highest returns.