If you’re interested in buying land but don’t have a lot of cash, you may think it is simply impossible to do so.
However, the truth is that there are several ways to buy land with no money: You just need to know where to look and how to finance it.
Read on to learn more.
Quick Overview: The Types of Land Investments
There are several different types of land investments, including:
- Developed, undeveloped, and raw land;
- Land for commercial property;
- Land for residential property;
- Land managed by real estate investment trusts (REITs);
- Crowdfunded land investments;
- And more.
Generally, these assets are considered physical real estate and other non-physical investments. REITs and crowdfunded land investments tend to be less expensive investments than direct parcel purchases yet may yield smaller returns.
Is Investing in Real Estate a Good Idea?
Real estate investing is one of the oldest ways to invest money and hedge against negative market moves.
While it can be challenging to start, buying property has many benefits. For example, real estate can be a great way to build long-term generational wealth.
Real estate investments also tend to provide a steady stream of passive income over time. In the case of land, the options for passive income are endless: land leases, hunting leases, and other rental agreements exist to make landowners money.
Residential vs. Commercial Land Investments
When you are looking to buy land for your new home or business, you must understand that there are different kinds of land you could purchase.
Commercial land is zoned for commercial buildings, such as retail or office buildings, while residential land is zoned for residential purposes, e.g., houses and apartments.
Residential land tends to remain in higher demand, generate stable returns through positive and negative economic cycles, and offer more financing options than commercial land investments.
Commercial land, however, tends to provide more reliable tenants locked into longer-term agreements.
Two Alternative Ways to Buy Land With Little to No Money Down
There are many different ways to own land. Whether you’re looking to buy your first parcel of land with cash or leverage a loan, there’s always a way to do it.
Buying Land Via Owner Financing
A common alternative way to buy land is through owner financing. In other words, you and the seller create a direct payment plan for the property without any middleman brokering the transaction.
The down payments for owner-financed deals tend to be as low as 5% (or nothing at all in some cases), much lower than a bank would request you to pay, and credit score isn’t as much of a concern here.
However, the seller has the option to foreclose the property if you miss payments.
Buying Land With a Partner
Another alternative way to purchase land is to invest with a partner and split the responsibilities: Your partner puts up the money needed upfront to secure the purchase, and you handle the day-to-day tasks and responsibilities with land ownership.
You may not have to put any money down depending on whom you partner with. This may be easier said than done, however.
Issues to Consider When Buying Land
Before buying land, you need to define your “why”: Do you plan to zone the land for residential or commercial purposes? Do you plan to lease it out to farmers and hunters? Or do you simply plan to buy and hold?
An often-overlooked component in the land-buying process is the environmental assessment or the physical condition of the land you’re looking to buy.
Land investments must pass environmental assessments to be considered viable for development. If they don’t and are found to contain hazardous materials, the costs of getting them up-to-code can be prohibitive.
You’ll also want to remember to have a surveyor come out and expect your potential property so you can get a good idea of its boundaries and identify any illegal encroachments by neighbors.
Tips for Buying Land With No Money Down
Here are some strategies to consider if you plan on buying land with no money down.
Family & Friends
You can inherit the land, buy land, or ask for financial assistance for the down payment from friends and family members.
If your credit score stands in the way of getting approval for the loan that you need, a family member or friend might be willing to co-sign for you to help.
VA Home Loan Program
The VA home loan program is available for veterans, active members, and spouses. This can significantly reduce the amount you’ll pay for a down payment and closing costs.
USDA Mortgage Program
The USDA home loan program might be a good fit for properties in eligible rural areas. It’s aimed at providing low-income people access to homes in rural areas. There is no money required as a down payment for eligible homebuyers.
Drawbacks to the USDA Mortgage Program
The USDA mortgage program can only cover mortgages in select rural areas. This may or may not be where you want to buy land. To qualify, you cannot earn more than 115% of the median household income.
Work With Partners & Investors
If you don’t have all of the money, partner with people who can also invest in the property.
By pooling your assets, you can purchase the land without putting up all the money yourself. You may even be able to split the responsibilities entirely and not have to put any money down yourself.
Owner Finance the Land
Another way to afford the land is to have the owner finance the land sale for you.
As mentioned earlier, this is also called seller or owner financing. It simply means that the land owner accepts a down payment and leases the land to you, which you pay off in installments directly to the land owner instead of a third-party lender.
Real Estate Crowdfunding
Crowdfunding is like finding investors but on a more extensive and less personal scale.
People can donate to your project to help you start it.
The BRRRR Method
The BRRRR method stands for buy, rehab, rent, refinance, and repeat, and it’s a method of turning land into a profitable investment. What you do is:
- Buy the land using a loan;
- Rehab it into something people want;
- Rent it to bring in income;
- Refinance your loan to take out the equity; and
- Use the equity to buy more land and repeat the process.
This lets you get the most out of the land while paying off any loans and making a profit.
Hard Money Lenders
Hard money lenders make loans based on collateral rather than your finances.
You can use a hard money loan to purchase land or property, but it often becomes collateral for the loan, along with other things you own of value.
Think of hard money lending as a secured loan from a bank backed up by your house.
Be sure to scrutinize all of the land listings you consider to ensure you understand everything you can about the property and the options available to buy it.
How to Buy Land Without a REALTOR®?
It is possible to buy land without a Realtor. However, you should still connect with other professionals to handle various aspects of the sale, including a lawyer to review contracts and a finance broker to secure a mortgage, if needed.
This can save you from having to pay an extra commission.
Buying land without a REALTOR® is as simple as searching online for land available for sale, scrutinizing those listings, then directly contacting those who listed that land for sale.
What About My Credit Score?
Your credit score could have an impact on your ability to get financing. It will also influence how high your interest rates are.
Your credit score, however, may carry a lighter burden on your ability to buy land if you purchase the land in an alternative way, such as with owner financing, partner investments, and help from friends and family.
How to Get Higher Returns Through Real Estate Appreciation
Opt to find undervalued properties in areas that are growing. This can help you get higher returns through real estate appreciation.
Since all available land on Planet Earth has been discovered, the scarcity of land has increased exponentially, making it a precious long-term investment.
Even through periods of significant economic downturn, land has outperformed other asset classes with double-digit returns.
This is due to land naturally appreciating over time and retaining solid commercial and residential demand.
Is Buying Empty Land a Good Investment?
Buying empty land is a good investment if you plan to develop it, lease it out, or resell it later at a higher value.
How Much Is a Down Payment on Land?
You can expect to pay anywhere between 5% and 30% of the price as a downpayment, depending on how you purchase and finance the land.
How Do Small Plots of Land Make Money?
Small plot owners often rent their land to businesses like advertising companies for billboard space. Storage space, farmland, and solar energy farming are also common options.
How Do Empty Lots Make Money?
Empty lot owners rent their space to those who can use it for various purposes that won’t ruin the value of the land, such as hunting and camping.
What Can You Do With One Acre of Land?
What you do with one acre of land depends upon your business plan. You can develop the land with residential or commercial real estate, lease it out to others, or just let it naturally appreciate over time.
How to Buy Land With No Money: The Bottom Line
It is entirely possible to buy land with no money. The key is finding a source of funding that you can work with to make it happen.
Many people and organizations are willing to lend you money in one way or another. You just have to compile a group of investments or investors you can manage over time and locate a profitable investment opportunity.