If you are thinking about purchasing raw land in British Columbia, Canada for the purpose of building a house, recreational property or for investment, there are many factors and costs to consider. The cost of servicing the land for construction and to build out may be quite significant. Furthermore, if you are holding the land as investment, one should be aware that this is a risky and speculative type of business venture. Those who do purchase raw land and make money from it tend to be sophisticated real estate experts, who understand the mechanics and potential industry circumstances. The purchaser must have a clear and objective focus in terms of goals and the inherent risk. As a result of numerous risks surrounding raw land, the potential rate of return on your investment may be extraordinary.
Let’s go over some of the pros and cons of purchasing raw land and how a private mortgage loan in BC can help you achieve your investment goals.
Cost
- Raw land is usually inexpensive to purchase.
Appreciation in Value
- Purchasing raw land has the potential to make a nice rate of return on your investment. It may be that the raw land appreciates in value over time as populations nearby grow and the demand for neighbouring land increases.
Diversification
- Raw land allows to you learn, understand, and then diversify your real estate experience for personal gain and investment purposes
Disadvantages of Purchasing Raw Land:
Financing
- Financing for raw land, whether you are located in Surrey, Langley, Abbotsford, Kelowna, or other areas in BC, is not so easily obtainable. Bank and other lenders may see the lack of income and speculative nature of the property, which may deter them from lending. As a result, it would make using raw land as security for raising money for other investment purposes very difficult.
Upfront Investment & Risk
- Purchasing raw land may require larger upfront investment and may be considered a higher risk as no cash flow is generated from raw land. All financial servicing of the property would come out of your pocket.
Zoning Restrictions
- The municipality your raw land is located in may restrict the zoning and use of land. Definitely make sure to research local zoning laws before making a purchase.
- Your plans for development simply may not materialize due to changes in the official community plan of the municipality
- The municipality may expropriate the property for their own purposes and use. For things such as green space, highway expansion…
Other
- Revenue Canada may consider the profit obtained from the sale of raw land as speculative income or perhaps capital gains. Either will result in a significant income tax expense to the landowner.
Private Mortgage Loans for Raw Land Purchase in British Columbia
If you are a current homeowner in BC and are considering making a purchase of raw land, it’s important to understand the advantages and disadvantages of this type of investment. If you have any questions or concerns regarding the purchase or financing aspects of raw land, please contact a mortgage specialist to better understand your options. Whether you live in Surrey, Langley, Abbotsford, Kelowna, or elsewhere in British Colubmia – get in touch with us today to learn more about how Silver Hill can help you achieve your goals with a private mortgage loan.
