As various sides continue to argue about the number of new builds in the UK, and lack of investment by the government, is it time to look at investing in a land? While there are obvious differences between investing in land and investing in built properties there are a number of factors to take into consideration. The idea of joining the investment cycle from empty land to a built property offers varying degrees of risk but perhaps it is time to review these.
Land is a static figure
When you consider the simple fact that the population the UK continues to grow, there is a requirement for more housing then this in itself can be a very strong argument for investing in land. Aside from suitable land there are obviously green belts and brown fields available across the UK but at the moment these have limited use in the world of property development. However, it is only a matter of time before regulations are loosened and much of this land is made available for property development.
Leveraging your investment
When investing in a completed property that is the done deal, there is nothing more to do, except repay the loan and maintain the property in good stead. If you begin your property adventure with the acquisition of undeveloped land there is the potential to leverage your investment as and when planning permission is received.
In previous articles we have covered the idea of leveraging short-term loans to finish a property and then use the finished value to take out a traditional mortgage to repay the short term loan. In theory, there should be a significant amount of money left between the short term loan repayment and the traditional mortgage leaving liquidity for future investment.
Selling land with planning permission
When you acquire property which has limited or no planning permission at the point of purchase or you acquire property where there is active planning permission, there are many options going forward. From an investment point of view the best outcome would be to buy property with no planning permission, obtain planning permission and sell this onto a developer for a significant profit. Even acquiring a property which already has outline planning permission could turn out to be an interesting opportunity because, obviously depending upon the location, there’s a good chance there will be growing demand in the future.
Risk profile
There are two particular issues to bear in mind when looking to acquire land. The first is that you acquire land but you aren’t able to obtain planning permission until many years down the line. In this scenario you have “dead money” invested in that land which could be used elsewhere and may prove difficult to resell.
The second issue to take into consideration is when you receive planning permission and begin to develop a property. In theory there should be a significant margin between developing your own property and reselling to a third party. However, we all know that in the world of property development many issues can emerge such as delays and financial problems which can increase the risk factor and the chances of obtaining a return in the longer term.
Conclusion
The earlier you join the property investment cycle the lower your initial investment but the higher the risk. This is where you will need to review the risk/reward ratio and compare this to your own financial targets and investment criteria. It is not simply a case of buying some land, obtaining planning permission, developing a property, selling to a third party and banking a profit. There are many potential pitfalls along the way but if you can navigate these successfully then there is potential to crystallise a good return.