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Freedom to find the best use

One of the biggest benefits of choosing a vacant land loan for your financing is you have the option of choosing the best use for the property and shaping the land however you see fit.

The caveat is that you may be limited by existing zoning restrictions. if you decide to go this route, do your homework and talk to someone on the local zoning board and planning commission to see if your vision can become a reality.

More affordable than developed land

As stated above, undeveloped land is generally considered more affordable than developed land. Getting a piece of undeveloped land in an up-and-coming area can be a good investment strategy. However, a land loan usually only represents part of your total cost. Generally, investors will also have a construction loan to worry about after they purchase the land itself.

Cons of land loans

Those points aside, there are also some disadvantages to getting a land loan over a construction loan. Be sure to consider these carefully to know what you’re getting into if you do end up pursuing this type of financing.

You may face stricter qualifying requirements

Since land loans are often thought to be riskier by lenders, they also come with stricter qualifying requirements. You likely need to have a good or excellent credit score, and you should be prepared to put down a larger-than-normal down payment. Additionally, you may be subject to a higher interest rate.

The tax benefits are limited

Unfortunately, the tax benefits of buying land are limited. While you may be able to depreciate certain improvements, such as roads or a sewer system, you won’t be able to take a mortgage interest deduction until you’ve built a structure on the land and construction is complete.

No immediate cash flow

As an investor, there’s not going to be any immediate cash flow with this property. In fact, you have to build your structure on the lot before you see any substantial income from your investment. (more…)

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