What Is Commercial Land in Investing?

Good land is and will always be a tangible asset that appreciates with time. As a commercial investment, there is less competition, lower risk, less hands-on involvement, and lower upfront costs. Commercial buildings require far more maintenance, property management, and higher insurance premiums and pose a greater financial risk overall.

A commercial land investment requires no costly renovations, nor does it require extensive upkeep or complex regulatory hurdles. There are no tenants or building inspections, and no utilities in use. Land investments are a clean slate for any future potential commercial use.

Farming, billboards, industrial parks, office buildings or coworking spaces, multifamily complexes, and retail hubs are some of the potential end-use opportunities that may appeal to
commercial real estate investors. The simplest way to make a return from your investment is to purchase and hold the land, investing in the profit from its future sale.

Purchasing commercial land vs commercial buildings may present a complex investment decision. While commercial buildings can generate more cash flow, they also come with tenant issues, potential vacancy rates, and high maintenance fees.

Commercial land is also a good investment that offers diversification from those more traditional approaches to wealth management. Other financial benefits include:

• Lower Investment Threshold: The cost to purchase bare land is significantly lower than the cost to acquire a commercial building or industrial park or invest in a commercial joint venture.
• High Resale Potential: Land is an appreciating asset, and even just buying and holding, with no other improvements, could result in a significant profit margin.
• Passive Income Opportunities: You can lease bare land for creative uses like storage, billboards, or even farming and still generate cash flow from a passive income stream without developing the land yourself.
• Little To No Operating Costs: Commercial land investments don’t require property management fees, maintenance, utility costs, or insurance. This preserves more of your liquid cash without sacrificing a high return on investment later.
• Appreciation vs. Depreciation: Commercial buildings depreciate in value over time. While this helps reduce your tax liability, by comparison, land appreciates over time, and you don’t have to make any improvements or manage a tenant.

For first-time investors, buying commercial real estate or commercial land is a strong investment strategy that doesn’t depend on one or two tenants in a single-family home, the volatility of the stock market, or the complex management of retail rental properties.

Commercial land investments can be solo endeavors, joint venture properties, or just another division of your investment portfolio. The best first step is to secure great financing.

• Financing: If you’re not using your own money, look for commercial real estate lenders in a healthy commercial real estate market or tap into private or creative financing options.
• Market Research: Target undervalued parcels that have significant potential in the future. Look in a high-growth area or along the path of development within the next two to ten years.
• Due Diligence: For the profitable success of your land investment, choose a parcel zoned for commercial, with little to no usage restrictions, access to utilities, and with similar or supporting development in the works.
• Environmental Testing, Rights, and Status: Environmental due diligence will ensure the land is not protected from specific uses or future development.[1] Also, check for water rights, mineral rights, and floodplain status.
• Explore Potential Future Uses: Don’t get locked into boring, traditional projects. Analyze market trends and make informed projections. Think outside the box for future commercial development: data centers, research labs, distribution centers, billboards, farming, industrial parks, etc.
• Buy and Hold: Make your investment property selection and retain ownership for an extended period.
• Work With Experienced CRE Professionals: This is mission-critical. Real estate professionals with experience finding, acquiring, and even developing commercial real estate properties are your ace in the hole in commercial land investing.
• Work With A Vetted Asset or Investment Management Company: Experienced investment professionals like Thoroughbred Ventures will walk you through all the complexities of commercial leases, purchasing land for industrial properties, understanding the property’s value, and everything you need to know to be successful as a commercial land investor.

Before you find the perfect parcel, it’s important to understand the potential cautions of investing in commercial land. These investments seem simple out of the gate but require significant due diligence, costly environmental testing, detailed knowledge of zoning laws, potential use restrictions, and complex financing requirements. The best way to find success as a commercial land investor is to work with CRE professionals and investment managers who have a profitable track record to prove their expertise.