An Investor’s Perspective: Land vs. Houses

People always ask me why I don’t focus more on buying and flipping homes rather than buying and flipping land? For me, the answer is simple. In order to buy a good home for a flip, you have to find a home that already has equity. So you work the short sale markets, foreclosure auctions, REO deals from your bank or the for sale by owner advertisements all in the hopes of finding that special deal.

Let’s say you get lucky and find a home that actually has equity in it and you were able to secure it from all the other professional investors in your area (and that is a big accomplishment). Now, you have to do the exhaustive analysis. How much is going to cost to improve the house? Do you need to replace the appliances? Are you in a neighborhood that would require granite countertops? Will you have to improve the landscaping? Is the cabinetry old?

Typically, the best investment / improvement in a home for flipping is going to be in the kitchen and bathrooms. If you aren’t set up to make these improvements yourself, you’re going to have to find a few contractors to help you. And of course you know what they say good help is hard to find… After you have priced out the improvements now you have to hire a realtor to help you market and sell your property within the comps. If you bought right, and you did your financial analysis correctly after the realtors fees, title fees and improvements hopefully there is enough of a profit to make this labor-intensive venture worth your while.

Now let’s compare this to buying and flipping land. First, you have to buy the property at the right price just like a house. However, since there are fewer professional land flippers there is an enormous opportunity to find deal after deal and typically it’s just as simple as sending offers to out of state owners whom owe back taxes. Voila! You have a deal. That was quick! Now, you don’t have any maintenance issues, no worries about a past tenant damaging your land or any other headaches… It’s just raw land. You can choose to improve it inexpensively by hiring a surveyor and marking the boundaries or fencing the property. Plus, inexpensive land is just that, inexpensive. You don’t have to worry about bank financing, and all the other fees associated with buying a house.

Now, you can inexpensively market the property yourself online via Craigslist, eBay classifieds and other free online avenues to drive traffic to your listing. Since the property is relatively inexpensive you also have a larger pool of buyers to choose from as you aren’t hampered by a neighborhood, school district or a home owners association that will limit your pool of house buyers. As a result, I can make a strong argument your return on your land investment will be less time consuming, take less financial analysis and make you a better return on investment with less inherent risk.