What Is Land Flipping and How to Do It?

$16,000 – that’s the average land cost in the US per acre. No doubt it’s much cheaper than buying a house, and trends reflect that. Land buying demand is up by 1.2% over 2023, likely motivated by an increase in land-flipping opportunities.

Land flipping can earn you a profit of $20,000 to $40,000 in 2 to 3 months, and is a good investment when you have limited funds. You can still choose to build a house on the land you purchase, but remember – it could cost you upwards of $42,000.

What Is Land Flipping?

Land flipping is a lucrative business where you purchase neglected land and sell it at a higher price. The sale price is determined by conducting a thorough market analysis, and neighborhood survey.

Evaluate different types of land you can flip like residential, agricultural, and commercial land. Make sure you research the zoning regulations in the region where you plan to buy land.

How Does Land Flipping Work?

Follow the 7 steps to flip land:

1. Look for Suitable Land: Identify neglected land with potential for future expansions. Try your luck at foreclosure auctions for a discounted land value.
2. Thorough Land Research: Shortlist a piece of land and investigate its history, current zoning laws, utility accessibility, etc. Update yourself with these details to be able to bargain with the seller.
3. Hire Professionals: Seek advice from a surveyor, lawyer, or environmental specialist. They can help you avoid costly mistakes and ensure the land is suitable for future development.
4. Network With Agents and Investors: Connect with real estate agents or other investors. They can help you get good leads or off-market deals.
5. Clear Pending Costs: Pay off the outstanding charges like property taxes, insurance, and other carrying costs, if any. This will make your property more attractive when you flip it.
6. Target the Right Buyers: Identify prospective buyers based on the land’s specific characteristics and potential use. For example, a plot might appeal more to a developer looking to build a manufacturing unit than a home builder.
7. Negotiate the Sale: Gather information on nearby land sales, understand the buyer’s motive, or consult a local agent. This will help you negotiate a better deal with the buyer.

✍️ What to do if land sale is taking longer? You can sub divide your land into smaller plots to attract a broad range of buyers. This could potentially speed up the sale process.

What Are Some Ways to Fund Your Land Flipping?

You can try out different ways to fund your land-flipping business:

1. Mortgage Lenders

You can purchase land with the funds from a mortgage lender, which you can repay later in installments. You can even opt for a bigger plot than you could afford entirely on your own. This can reap you greater profits when you flip the land.

However, these mortgages still require a down payment of at least 10% to 20% of the land value. It often carries a high rate of interest and strict documentation rules.

You can look for government loan programs like USDA (United States Department of Agriculture) loans. These loans are offered for agricultural land purchases. They offer a reduced lower interest rates but mandate the applicant’s education papers.

2. Hard Money Loans

Private financial lenders offer hard money loans. Consider this option if you don’t qualify for a traditional mortgage loan.

Hard money loans get quick approval due to lenient standards for the applicant’s income or credit score. It has a lower repayment period of approximately 6 months to 2 years. This means you become debt-free faster.

However, these private lenders charge you a higher interest rate. So, you might have to pay a lot if you don’t flip the land soon. The lender may ask you to make a downpayment of more than 20%. Hence, be cash-ready.

3. Home Equity Loan

You can consider tapping into your home equity to fund land flipping. Home equity is the portion of the home’s value you own.

Let’s assume your house’s market value is $300,000, out of which $200,000 is the mortgage amount. This difference of $100,000 is your home equity value, which you can receive as a lump sum.

HELOC (Home Equity Line of Credit) is another type of mortgage that provides you with a revolving line of credit against your home equity. The IRS also provides tax benefits on HELOC interest upon meeting their guidelines.

However, a house kept as collateral is risky. You may have to pay the interest for longer if the land doesn’t sell soon.

4. Self-Investment

Personal savings can be one of the best options to fund land flips. It keeps you safe from monthly payments and rising mortgage rates.

Alternatively, you can ask for financial help from your family or friends. Check if they are interested in a real estate investment. You can decide on the loan repayment terms mutually.

This is a dual-edged sword. If it goes wrong, you might lose your money as well as your loved ones.

Benefits of Land Flipping

Below are the benefits of land flipping:

1. Low Upfront Costs: Land is less expensive than houses. Land flipping also requires less money to begin with.
2. Less Maintenance: A piece of land doesn’t need continuous renovations and repairs. Thus, you can save a lot of time and money.
3. High Profits: Land is constantly sought after for the construction projects. Hence, it will always remain a highly valuable commodity. You can gain good profits after every land sale.

Risks of Land Flipping

Here are the potential downsides to flipping land:

1. Unpredictable Market: Land prices fluctuate significantly, especially during economic crises. If you purchase land and later the market crashes, you may face a huge loss.
2. Limited Liquidity: Land is not very liquid compared to houses. This means it can take long to sell even in a good market. This will lock your funds and make it hard to get the cash when you need it.
3. Hidden Problems: Land can have certain covert problems, like permits, zoning limitations, or environmental damage. These problems may substantially reduce the land value.
4. Bearing Costs: You will need to pay for the incurred expenses till the land is sold. Expenses like property tax and insurance can take from your profits if you hold the land for a long time.

Should You Consider Land Flipping?

Land flipping is a good investment opportunity to start with. It can return significant profits in the real estate business. However, it may keep you locked in the deal for a long time if the market is unfavorable.

Once you get substantial returns from flipping land, you may want to move on to flipping house. With services like 100% online assistance, flat fee MLS listing, document assistance, etc. Houzeo can help smoothen the process for you.

» Houzeo Reviews: See how Houzeo home sellers save thousands with Houzeo technology and MLS exposure.

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