Investment land has become a very popular option for those looking to get their money to work for them, as it’s a small entry into the world of real estate investing. But is it really worth it? For a certain market: no.
These spaces offer a small investment opportunity, as they are located in areas in which urban development has not yet arrived. Investment land is used by many people as a method of saving money under the premise that properties do not decrease their value, but on the contrary, they raise it.
This is certainly correct and they generate long-term returns for investors, but are they really a good idea?
The truth about investment lots
Despite being presented as a safe bet, the success of investment lots depends on a large series of factors that, if not met, may present much lower results than expected or predicted.
This does not mean that they are a bad option if you want to avoid the depreciation of savings or generate a second source of income. Investment lots are one of the best options that exist to start or increase an estate, however, they are not actually the secret formula as you may think.
Some of the main problemas you may encounter when investing in lots are:
- Fraud and instability
- Distant location
- Lethargy increasing its value
- Misleading capital gains
Fraud and instability
One of the main dangers of investment lots is being the victim of fraud. The fact of having such low and accessible prices corresponds to the lack of urbanization, which is why it is really difficult to know if the promised development will arrive or not and at what level.
Developing cities are the main focus of attention for entrepreneurs and investors, so it is very common to have investment lots for sale on the outskirts of the city. These places are usually very attractive for people who want to establish businesses, shopping malls, real estate developments or subdivide it and sell it in smaller lots.
Poor accessibility and difficulty of verifying the measurements of the lots for sale are two factors that are used to carry out fraud. From incomplete legal paperwork, to not having the promised development, being a victim of fraud when buying investment lots is more common than it should and is a very important problem.
Location is one of the main benefits of investment lots. The promise is that urban development such as streets, avenues, schools, shopping malls, among others, will reach the area where the lot is located and will add value over time.
This on the one hand is true, but on the other it represents a big risk, because if the promises that were made are not fulfilled, the investor will end up with a vacant lot in the middle of nowhere without many possibilities of construction or resale.
Another problem is the timing of the investment, if you are looking to enter a city that is already in the middle of an expansion process, the available investment lots will be more and more away from the city compared to those that form part of it and they have completed their capital gain acquisition cycle.
They take a long time to increase in value
This is one of the main obstacles that investors face. Investment lots are by nature a long-term project, so you will not see real returns in the first 10, 15 or even 20 years depending on your location.
Although the investment increases its value over time, this is not an option for people who seek to generate income in the short or medium term, in addition to the fact that the value they actually reach will depend on external factors such as development planning of the city or the shops that other people put in the area.
This is the main reason that prices are so low: they bet on a “virgin” area with the hope that in a few decades it will be populated and developed, increasing its value. However, the wait is very long and results are not guaranteed.
Misleading capital gains
The real estate market is one of the main investment models given that the value of properties does not decline over time, as with vehicles or technology, but increases. This is one of the main arguments of the sales pitch of investment lots and starts from a certain premise: your investment will increase exponentially.
But this does not mean that investment lots are the best option or that they have found the black thread. The reason why the investment reaches up to 10 or 15 times its initial value is because with investment lots you are starting from scratch.
Of course, on paper saying that you can multiply your investment by 10 times its initial value sounds very striking, but this is because you are buying areas of land that have very, very little value. If exponential gains are being generated, this does not mean that the capital gain of the area is greater than others or that it is the best option, rather it is because the value is so low that any gain will be relatively greater than invested.
Is it worth investing in investment lots? How do you know if it is money lost?
In cities like Merida, the real estate market is in a great period of growth, thanks in part to the high rates of security and quality of life. This however, has led to the reality in which many projects operate irregularly, seeking to take advantage of investors seeking opportunities to grow their money.
By June 2020, up to 50 projects of irregular investment lots had been registered in Mérida, so the Yucatan State Housing Institute is already carrying out legislation that helps reduce this problem.
While these regulations arrive, these are the things that should worry you about a lot if they offer you to invest:
- If the company has no track record, it may be money lost.
- If the development does not have water or electricity services, it may be money lost.
- Failure to present a title deed can be money lost.
- If there is no physical evidence of the promised development, it may be money lost.
- If you don’t have a development plan, it can be money lost.
So what is the alternative?
There are investment options with better returns, low risk and with enough information to investigate and compare
- Buying debt bonds
- investment shares with professionals like i11 Tierra
- purchase of shares
- investment in 100 ladrillos
Real estate developments are one of the most striking alternatives to invest in the real estate market, since by having urbanization plans that allow the capital gain to be calculated more accurately, the investment is usually safer and more successful.
To a large extent, what differentiates these two forms of investment are the amenities that real estate developments have. These additional services and spaces can generate added value by increasing the return on investment and the value of nearby properties.
Another important factor is innovation and the service provided to the investor. There are developers who seek to make their developments tangible even when they are not completed, so that the investor can capture the value in a visual way and not based solely on the numbers.
Additionally, the location of newly built or renovated developments or properties makes them attractive to start using soon, unlike lots that involve a long wait to start taking advantage of the investment. They have nearby services and entertainment venues that integrate them into an already established urban space.
Finally, the mere fact of already having a construction immediately highlights this type of project, providing security and certainty to the immediate performance of the property.
Thus, the already built projects distance themselves in every way from the concerns that investment lots provide.
All this plays an important role in the purchase decision, that is why many developments have begun to add additional services that add value to their projects and have opted for advertising strategies that captivate the eyes of their potential buyers.
This is the case with Hoppers, which uses hyper-realistic renderings that allow the user to be inside the development even before it has been built. This allows the investor to enter the project and thus achieve a completely different experience.
It is important to identify which amenities generate greater added value and to bet on projects that manage to integrate relevant topics such as technology with sustainable development, for example, since these amenities will gradually increase the value of the development and therefore, of the investment.