Continuing our recent theme of looking for alternatives to house flipping with a lower barrier of entry, (in our last blog ‘House Flipping Alternatives’ we discussed wholesaling and birddogging), have you considered land flipping as an alternative to flipping houses? As you will see in this article, a higher profit margin is just one of many advantages.
What is Land Flipping?
Firstly, we should point out that the legitimate business of flipping land has nothing to do with an illegitimate ‘land flip’ which is an expression that can refer to a fraudulent practice. That of trading a piece of land between a group of conspiring parties to artificially inflate its value before selling it on to an unsuspecting party.
Investopedia gives the following explanation of that fraudulent practice, “a land flip group of five might purchase a piece of land for $10,000. Each member of the group sells the piece of land to another for a slightly higher price. When the fifth and final member has purchased the property from the others, its price has risen to $14,000. At this point, the group sells the land to an independent buyer for $15,000 generating a fraudulent profit of $5,000.”
In this article, we will introduce the legitimate business of land flipping including the basics of how to do it. The focus of the article will be on the advantages of flipping land as an alternative to flipping houses and we will also mention the possible disadvantages.
In the same way, as a house flipper buys and sells a home for a profit within a relatively short time frame. You can do the same with vacant lots of land.
You have many options for searching for land online. Online real estate websites such as Zillow and Trulia are great places to look to buy land. There are other online equivalents to land brokers such as Land and Farm which can provide a wealth of potential deals. Here are three more options:
You can find listings starting at less than $1,000 here.
If you set the search criteria for 0 bedrooms and bathrooms, and click - Price: Low to High in the Sort field, the lots and land should top the list of results.
Many sellers will not have their properties listed by an agent so check free sites like craigslist.
You can sell using a land contract. You retain the title to the property until the final payment is made and then you can sign a deed for the buyer.
You could also sell with the transfer of the title and put a mortgage on the property.
Real estate rules vary by state, so it is important to consult with a real estate attorney if you are buying a selling property with a land contract.
Know Your Costs
In addition to your purchase price you will also have the following expenses:
Closing the purchase, recording the deed, property taxes until you sell, closing the sale, recording the contract, and preparing the deed when your buyer pays in full.
Let’s look now at the advantages of flipping land over flipping houses.
Advantages of Flipping Land
Low Barrier of Entry
Buying houses often requires hundreds of thousands of dollars whereas a land purchase can cost as little as a thousand dollars $1,000. Land investment has a much lower cost of entry.
Buy Without Leaving Your Desk
Many if not most land investors never inspect the land before they buy. In contrast, a house needs to be visited and carefully inspected to ascertain the real value of the asset. This is one of the big advantages of flipping land.
Simplicity of Transaction
Since you are dealing with smaller amounts, land is usually bought and sold for cash. Land deals only require a buyer and a seller and are easy to complete and everything can be done online.
In contrast, a house flip requires multiple parties including agents, lenders, appraisers, escrow agents and inspectors.
Land dealers are usually looking to at least double or even triple their money within a very short time of the acquisition, often just a few days. House flippers are very happy if the make a 20% profit. Of course, even though land deals are faster and have higher profit margins, the amounts are less so you need to do a correspondingly larger number of deals to make the same amount of money as you would on a house flip.
Cash Flow Potential
After you have paid cash for your land you can offer to finance when you sell. This enables you to have a monthly income from the payments and allowing financing means you can increase your profit margin.
So are there any disadvantages to flipping land?
If you do decide to enter this line of investing just beware of the following potential pitfalls:
Landlocked Parcels – landlocked means a parcel is fully surrounded by other properties with no easy access, perhaps there is not even a driveway.
Flood Zones – If the land is in a flood zone, laws may prevent you from developing and there is also the matter of who will want to take a risk on insuring the property.
Environmental Issues – Environmental concerns range from being a wetland protected area to a former junkyard. There might be political opposition from people who would prefer that the land not be developed.
Size and Shape – The lot needs to be of sufficient size and a workable shape for the building or development you are planning.
Volatile Prices - Land prices can be volatile. In up-cycles, land prices increase rapidly. But in down-cycles, prices can really crash. Timing is all-important with flipping land.
Summary- Land Flipping
Land flipping can be a good way to start your real estate career. A lot of people have made plenty of money house flipping but if the barriers to entry seem too high for now, why not try flipping land?