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Selection tips before you purchase the land site for building a rental property


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Some areas have lands that are highly over priced but the rent does not measure up. Investing in such an area will take longer time to recoup investment. The property will not also gain so much value after some years. Don’t invest in areas where you know your property will suffer rent void, give lower rental rate and/or get low property value appreciation.
Below are some things to consider before buying a land for rental purposes.
1.  Compare land price to rental rate:    A good investor should be able to compare rental rates to land prices in different areas. This will give them an idea of where best to invest and get good returns. The bulk of the difference in the cost of similar real estate properties in different areas is usually the difference in cost of bare land in the different areas. In most cases, cost of labor and materials of the building structure is similar in a particular locality. Sometimes it is better to acquire a parcel of land in Locality-1, a seemingly expensive area, build and rent it out for a good high price than buy a very cheap piece of land in Locality-2 that shares boundaries with Locality-1 , only to spend similar labor and material costs for building and end up with very low rent prices. Likewise, some areas have disproportionately high land prices but cannot command commensurate rent prices. Do the math before investing.
2.  Check the rate at which the land is gaining value: Compare land prices 5 years ago to current price. Also check if there is any upcoming infrastructural projects, businesses or if developments of any kind are coming to the area in the near future. These are some of the factors that will drive up the prices of land.
3.  Is the area attractive to the middle to high income earners?  Some areas are fast developing due to the kind of nice houses being built in the area while others may be due to infrastructural developments, nearness to the beach or proximity to industries/businesses. An area with beautiful houses, good infrastructure and security attracts middle to high income earners who will pay good rent and buy more real estate thus driving up demand and property values in the area.     
4. Good road network and accessibility to shopping: Smooth paved roads, interconnected road network and good accessibility to markets and shopping areas are some of the factors that encourage renters and real estate buyers to come into an area.
5.   Flood free area: Ensure the area has good drainage system or at the least does not flood during rainy season.
6.   Future projections of supply vs. demand for land in the area: A careful analysis of an area will reveal its potential to develop fast, hence attract more people into the area. When the demand for new land or houses in the area is higher than supply, then scarcity sets in and drive up prices.
7.   Proximity to corporate areas: If you have apartments close to an area with lots of business offices, it tends to rent out faster, because people like to live not too far from their place of work. It saves them money on transportation.
8.  Within a gated estate: Getting a property within a gated estate or community, have a good chance of renting out fast. This is because of the added security it provides.
9. Hoodlums’ free area: some areas are so dirty and harbor lots of thieves and hoodlums. Responsible people don’t want to live in such areas for the fear of being  molested or robbed.


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  1. UnknownJuly 16, 2019 at 7:52 AM

    This information can save you serious money. Thanks!

    ReplyDelete

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