Buying Raw Land: How to Make a Profit


Buying raw land can be complicated and risky, but if done properly, you can make a pretty decent ROI and sometimes an incredible one. Some of the ways to get exposure to raw land include buying raw land before planning permission, buying land that yields a crop or a product, or investing in a fund related to raw land. However, when considering whether or not to invest in land, know that you will have to take big risks for those big rewards.

Buying and investing in raw land is the most basic real estate investment you can make, but it can become one of the most complicated. First and foremost, when buying raw land, you need to make sure that you have at least one or two surefire ways to exit the investment should you need to.

Below, we show you some examples of how to invest in raw land for various purposes, including the expenses you need to consider, and ultimately, how to make a profit.

Raw land 101

Raw land refers to vacant land that has no existing structures, driveways, utilities, or other human-made structures, both underground and aboveground. From a planning perspective, the land has no planning permission for any sort of development. This is an important point to note because even if the land is completely empty with nothing human-made underneath or above it, it’s not considered raw land if it has planning permission. Below are some different types of raw-land investing that people engage in.

  • Residential land for residential real estate
  • Commercial land for commercial real estate
  • Land with mineral rights/production
  • Land that yields a crop (vineyards, farmland, orchards, timber, palm oil)
  • Land that yields livestock (cattle, sheep, etc.)
  • Public use land
  • Row crop land
  • Exposure through third parties (funds, asset managers, private equity, etc.)

Common ways to buy raw land and make a profit yourself

Investing in ETFs and real estate investment trusts (REITs) to get exposure to raw land and make a profit is much simpler. You buy into a stock or fund with exposure to land, and they give you a return via growth or cash flow. If you’d like to invest in land this way, these brokerages can help you find the right funds for your investment goals.

Purchasing the land yourself is much more complicated but can earn you a better return. Here are three common ways you can buy land as a real estate investor and make a profit on these land investment properties without taking on too much risk.

Buy land poised for development

One of the simplest and most effective ways to purchase raw land and make a profit is to buy raw land that can be developed. In most cases, this isn’t going to be a random plot of land on a mountain that takes two hours to hike to. This might be on the edge of a city or town or in an area with no development that could use a rest stop or some other type of infrastructure. There are three ways to make money from raw-land investing:

  1. Speculate on the land without obtaining planning.
  2. Obtain some level of planning permission and then flip it or portion it off.
  3. Develop it yourself into the actual structures that the planning was meant for.

In some cases, you can combine the two. You can buy a plot of land, obtain the planning, sell certain plots with planning, and develop a plot yourself using the funds from your apportionment sales. Let’s take a look at how this works.

Speculating on land without obtaining planning

Land speculation is just buying raw land with the idea that it will go up in value. The idea that it will go up without any planning could be based on the following assumptions:

  • The land is near urban sprawl popping up and thus will surely be the next to be developed
  • The land has some other qualities, like possible mineral rights

When land is at the edge of a city or town that is expanding in that direction, chances are good that developers might be interested in the raw land at some point. If the land is located in an area where someone recently discovered natural gas deposits, then buying land with mineral rights could be a smart play. Land speculation is considered a high-risk, high-reward investment because you aren’t adding any value to the land yourself. You are merely hoping the value rises based on factors that are out of your direct control.

Example: $500,000 plot of land via speculation

Land Purchase Price$500,000
Land Sales Price$600,000
Total Profit$100,000

Pro Tip

Land investment isn’t for everyone, according to Ryan David, the owner of We Buy Houses in Pennsylvania. “As an investor, I will not spend a dime unless I know there’s value in making a quick profit without waiting a long time to cash in,” he says. “I have never and would never speculate on raw land. At the same time, I am a huge advocate for buying raw land ‘cheap’ and carving it up for a higher value. For example, think about a new development that can be subdivided and sold off to future homeowners.”


Buying land and getting planning permission/land entitlement

The second way to make money from buying raw land involves value. When you build or develop something, in the vast majority of cases, you need various sorts of planning permission. Every time you add planning to the land, its value increases. Below are some of the stages of planning permission that raw land can go through before it can be fully developed.

  • Site plan approval
  • Zoning and zoning variances
  • Conditional use permits
  • Utility permits
  • Road approvals
  • Landscape approvals
  • Subdivisions and reapportionments


The site plan approval is typically just a sketch of what you propose to the planning council, to be revised later. After submitting this, you will then need to go through the “zoning” process. The zoning process defines what type of property you want to build and the parameters. Zoning subsets include residential, commercial, hospitality, etc. For instance, you might ask for commercial zoning and be limited in size and height by the rules. You could ask for a zoning variance, which is permission to build something outside of the zoning parameters.


After zoning, you need to apply for various permits to build things like roads, utilities, and even landscapes. Furthermore, you can subdivide the land once you get various forms of planning permission and then sell it off. Herein lies the brilliance of this strategy. You will need to invest a lot of time and money to await the various stages of the land entitlement process. But once you do, as long as there is demand, you can sell it all off. Or you can sell it all or just a portion of it, but it immediately allows you to DE-RISK yourself and get some return.

Denis Smykalov, a real estate broker at Wolsen Real Estate, prefers this method. “Buying undeveloped land, gaining zoning approvals, and subdividing it usually requires more upfront investment, effort, and knowledge, as you have to navigate the zoning and subdivision process. However, doing so can significantly increase the land’s value and make it more attractive to potential buyers.”

Example: $500,000 with a plot of land and zoning for residential condos

Land Purchase Cost$500,000.00
Land Holding Costs @ 2 years$12,000.00
Planning Consultants/Architects$60,000.00
Legal Fees$30,000.00
Total Invested$602,000.00
Total Land on Sale$1,000,000.00
Total Profit$398,000.00


In this scenario, you buy the land for $500,000 and go through the entitlement/planning process. You need to pay for the legal fees, administration fees, architects, etc., and various other “soft costs” associated with the entitlement process. You also need to pay holding costs, which are expenses like property taxes. After entitlement, you can sell the land for $1 million. Based on what you put in, you should make a profit of $398,000, which is a 66% return on the $602,000 you put in to buy the land and get it entitled.

Buying land and developing it yourself

The third option to make money from raw land is to buy the raw land, get the proper zoning and planning permission to build on it, and build it yourself. You will then sell the finished development to either retail investors (i.e., condos) or institutional investors (i.e., multifamily units). However, there are a few points you need to consider if you want to develop it yourself.

  • Can you afford to develop everything?
  • Can you get a construction loan, and on what terms?
  • Are there definite buyers of the end product?

Example: Buying land for $500,000 and developing it

In this scenario, we will look at what happens if you buy a $500,000 plot of land outright and choose to develop it. You decide that you can develop four two-bedroom condominiums just using the equity in the plot of land you bought outright, as well as by getting a construction loan. Those condos can then be sold at $600,000 apiece based on the current market.


Land Purchase Price$500,000.00Condo Sale$2,400,000.00
Soft Costs$120,000.00Total Costs$1,329,000.00
Hard Costs$600,000.00
Total Cost to Develop$720,000.00Total Profit$1,071,000.00
Equity pulled out of land @ 70% value$350,000.00ROI214.20%
Cost of Interest over 2 years @ 5%$35,000.00
Construction Loan$370,000.00
Construction Loan Interest over 2 years at 10%$74,000.00
Total Costs$1,329,000.00

Let’s go over how this works. In real estate development, there are two different types of costs: hard costs, and soft costs. Soft costs are expenses like planning and entitlement costs, legal costs, architecture, design, etc. It’s anything not related to physical development and construction. Hard costs are the costs involved in building the property, meaning everything from building materials to contractors. We have estimated the soft costs at $100,000 and the hard costs at $600,000. So all in, it’s $700,000 to develop the land.

Once you have your plot of land, you can immediately pull equity out of it. This can be used to pay for some of the soft costs upfront and can also be used as equity toward your construction.

Financing with loans

One way to start would be to pull, say, 70% of the land value out via a mortgage loan. It’s not a refinance per se, as there was never any financing in the first place, but it’s the same concept. That would give you $350,000, which would pay for all of the soft costs ($100,000), and allow you to put $200,000 toward construction. The rest you would borrow from the bank in the form of a construction loan. Construction loans are short-term loans that act more as a credit line with higher interest rates. This is why the interest you are paying for taking out the mortgage loan is lower than the construction loan; they are different types of loans.

Your total profit

So if you sell all four condos for $2,400,000, you make $1,000,095 in profit. Remember, you only put down $500,000 to buy the land initially; the rest of the costs are paid for via loans, on your land and for construction. You make a 2x return on your money or 209%. This is a very simple model but can help you wrap your head around how development works.

Risks in development

If development was easy and risk-free with these types of returns, everyone would do it. Obviously, to make that type of return, you’ll need to take on significant risk. Here are some of the risks.

  • Planning/entitlement is delayed or rejected.
  • Environmental studies create unexpected costs/liability.
  • Interest rates go up.
  • You get rejected for loans.
  • Values go down.
  • You can’t sell the end development.

There are other risks as well, so be careful if you’re looking at developing land yourself. If you’re ready to purchase land, check out our Ultimate Guide to Land Loans and review your options for business loans.


How to make money investing in land?

You can get exposure to undeveloped land by investing in REITs or ETFs that are land-related or buying agricultural land and renting it out. However, the three most common ways to make money on land are: buying a plot of land yourself and speculating on it, selling it after planning or developing it yourself.

Is it better to invest in real estate or land?

Real estate investing is not a one-size-fits-all strategy. If you purchase land, it could be considered riskier as there is not as well-defined an exit strategy as there is for real estate investors who invest in residential or commercial property.

Do billionaires invest in land?

Yes, they do. In fact, Bill Gates has been buying up farmland all over the U.S. as an investment property. However, a portfolio of millions of acres of agricultural land is impossible for most normal people when considering land ownership.

Key takeaways

  • Buying raw land can be complicated and risky, but done properly, land investments can make you a pretty decent ROI and sometimes an incredible one.
  • You can get exposure to land by buying land-related REITs and ETFs, investing in agricultural land that produces a crop, or just buying a plot of land for another purpose.
  • You can speculate on the land hoping the value goes up, you can add value through planning permission and entitlement, or you can choose to develop it yourself.
  • The further you take the land, the better return you can make, but it also involves investing more and taking on more risk.
View Article Sources
  1. Government Property for Sale or Disposal – U.S. General Services Administration
  2. FAQs About Federal Land Sales – U.S. Bureau of Land Management
  3. Should You Buy Undeveloped Land? Pros & Cons – SuperMoney
  4. How to Finance Land – SuperMoney
  5. The Ultimate Guide to Land Loans – SuperMoney
  6. How to Finance a New Construction – SuperMoney
  7. What Is Leverage in Real Estate? – SuperMoney
  8. Business Loans for Contractors – Everything You Need To Know – SuperMoney