Questions to Ask Before Land Speculation
- It is expensive to finance the purchase of land for speculative purposes. If you plan to take on a mortgage to buy the land, you will typically find that lenders charge a high interest rate. This is because they consider this sort of lending to be a high-risk endeavor. You will have to consider whether the return you expect will be worth paying this financing cost.
- In addition to the initial cost of financing the acquisition, you will have to incur the costs of holding it. For one, there are property taxes to be paid. Considering that the land is not generating any income while you hold it, this is additional money you will be spending. Decide whether you can afford this cost before you embark on your purchase.
- You will have to find out what the potential is for the development of the area in which you buy land. If it is likely that the area will start developing, the potential for land appreciation is greater. For instance, if a factory is being developed somewhere, the land in its vicinity is likely to go up in value. The factory employees will need services and will want to live close to their workplace. These factors are likely to have a favorable effect on land in the vicinity.
- There are zoning laws that determine what developers can build and where they can build. Find out what the zoning laws are in and around the area where you are looking to buy land. If residents of neighboring areas are not in favor of development and have enacted zoning laws that reflect this, you should watch out. Even if zoning laws are favorable at the time of your land purchase, they could change later.
