Passive Income: Is Buying Land a Good Investment for Your Real Estate Portfolio?

Building passive income is a cornerstone of financial freedom, especially for physicians exploring opportunities beyond clinical work. Many doctors I coach are considering real estate as a vehicle for wealth building, often debating whether to invest in land, rental properties, or short-term rentals (STRs). Based on my personal and professional experiences, let’s explore the potential of land investment and how it compares to other options, including lessons from my journey as an angel investor.

Why Land Can Be a Smart Investment

Owning land offers unique advantages compared to other real estate investments. Here’s why:

1. Tangible Asset with No Depreciation

Land is a finite resource; no one is making more of it. Unlike buildings, which require maintenance and depreciate over time, land retains its intrinsic value and often appreciates if you buy in the right location.

2. Low Maintenance Costs

When you buy raw, undeveloped land, there are no tenants, structures, or utility systems to maintain. This makes it an ideal low-cost option for passive income seekers.

3. Diverse Revenue Opportunities

Land opens the door to various income streams. You can lease it for agriculture, timber, or recreational use. Alternatively, you might sell mineral rights, develop the property, or hold it long-term for appreciation.

4. Tax Advantages

Depending on how you use the land, you could qualify for tax benefits such as agricultural exemptions or deductions for property improvements.

Potential Risks of Land Investment

While land offers many advantages, it’s not without risks. Let’s discuss the challenges you might face:

1. Lack of Immediate Cash Flow

Unlike rental properties, raw land doesn’t generate monthly income unless you actively lease it for a specific purpose. If cash flow is your primary goal, land might not meet your needs right away.

2. Zoning and Permitting Restrictions

Not all land can be used for your intended purpose. Zoning laws and environmental regulations could limit your ability to develop or monetize the property.

3. Liquidity Challenges

Land can take time to sell, especially in a slow market. This lack of liquidity can tie up your capital for longer than you might anticipate.

4. Ongoing Costs

Even though land requires little maintenance, you’ll still have to pay property taxes, insurance, and potentially HOA fees. These costs can add up over time, especially if the land isn’t generating income.

How to Evaluate Land as an Investment

If you’re considering adding land to your portfolio, here’s how to make an informed decision:

1. Research the Location

Location is everything in real estate, and land is no exception. Look for areas experiencing growth, with potential for future development or demand. Proximity to urban centers, highways, or natural resources can significantly affect value.

2. Understand Zoning Laws

Before you buy, review local zoning regulations to ensure the land aligns with your intended use. Speak with a zoning lawyer if you’re unsure about restrictions.

3. Check Utilities and Accessibility

Raw land often lacks essential utilities like water, electricity, or sewage systems. Ensure the land is accessible and consider the costs of adding utilities if necessary.

4. Assess Market Trends

Research recent land sales in the area to understand pricing trends. A local real estate agent or appraiser can provide valuable insights.

5. Start Small

If you’re new to land investing, consider starting with a small parcel to limit your risk. As you gain experience, you can expand into larger or more complex properties.

How Land Fits Into Your Real Estate Portfolio

Land can be a valuable addition to a diversified real estate portfolio. Here’s how it compares to other types of investments:

Land vs. Residential Properties

Residential properties provide immediate cash flow but require more management. Land offers long-term appreciation potential with less hassle but fewer short-term financial rewards.

Land vs. Commercial Real Estate

Commercial real estate often involves higher upfront costs and more complex leases. Land, on the other hand, is simpler to manage and can serve as a flexible investment for beginners or seasoned investors alike.

Land as a Hedge Against Inflation

Land ownership can act as a hedge against inflation, preserving your wealth as the dollar's value fluctuates. Over time, land generally appreciates, making it a reliable long-term asset.

Practical Tips for Success in Land Investment

• Leverage Experts: Work with a real estate agent specializing in land purchases. Their expertise can save you time and money.

• Conduct Due Diligence: Always perform a title search and environmental assessment before buying.

• Have a Clear Exit Strategy: Know whether you plan to hold, develop, or lease the land, and align your purchase with that goal.

Coaching a Physician's First Steps into Real Estate

Recently, I coached a physician beginning to explore passive income through real estate. He’s building his first portfolio, considering various options, including land. While land intrigues him, he’s leaning toward an STR as his first asset. His reasoning is sound—STRs can generate immediate cash flow while diversifying his income streams.

His goal is to build a portfolio of 4–5 STR units over the next several years. Starting with STRs allows him to benefit from hands-on learning, tax advantages like cost segregation, and the flexibility to manage properties remotely. As I shared my insights, I emphasized the importance of aligning his strategy with his long-term goals. Whether it’s land, STRs, or other assets, the key is starting with a manageable project and scaling as experience grows.

One of his first smart steps to explore STRs was for him and his wife to take the SRMD’s evergreen course on STRs called Accelerating Wealth. They both watched it separately and then came together weekly to discuss it on a "date night." I love this plan. If you are considering an STR, sign up for this course; you will love it!

The Risks of Land Investment: Lessons from My Angel Investment

While land can be a profitable long-term investment, it’s not without risks. Let me share my story—a cautionary tale of an angel investment in land for a Planned Unit Development (PUD) in my community.

Over 20 years ago, I partnered with another investor to fund a land purchase for an affordable housing project. The vision was clear, the potential impactful: affordable housing in an area that desperately needed it. Unfortunately, the housing and mortgage-banking crisis of 2008–2009 changed everything. The project manager, who was also a minority owner, embezzled funds during the downturn. It was a devastating breach of trust.

We were forced to oust him, which was an emotionally draining and legally complex process. After the crisis, I found myself managing the land and completing the development. For two decades, I methodically sold parcels, but the project became a significant financial loss and an enormous time sink.

The experience taught me critical lessons:

1. Partner Wisely: Carefully vet the individuals you partner with, especially in land development, where timelines can stretch.

2. Expect Market Cycles: Economic downturns are inevitable. Always build contingency plans.

3. Be Realistic About Liquidity: Land sales often take longer than anticipated, tying up capital and requiring patience.

Land vs. STRs: Which Fits Your Goals?

For many physicians, STRs like those my client is pursuing offer immediate cash flow and faster portfolio growth. STRs can be used personally, are more liquid, and tend to attract financing more easily than land purchases.

However, land has its place in a diversified portfolio, especially if you can afford a longer investment horizon. It’s also a way to hedge against inflation and provides opportunities for creative uses like agriculture or renewable energy projects.

My Advice to New Investors

If you’re just starting your real estate journey, here’s how to approach your decision:

1. Start Small

Whether you choose land or an STR, begin with a manageable project. My client’s goal of one STR before expanding to a portfolio is a smart strategy.

2. Focus on Cash Flow

STRs or rental properties provide monthly income, while land is better suited for long-term growth.

3. Do Your Homework

Research zoning laws, environmental restrictions, and market trends. For land, ensure it aligns with your goals, whether for appreciation or development.

4. Learn from Mentors

Seek advice from those who’ve been through the ups and downs. My story, though difficult, is full of lessons I now pass on to physicians like you.

SimpliMD Can Help You Build Your Real Estate Portfolio

If you’re serious about exploring passive income through real estate, SimpliMD is here to guide you every step of the way.

• $2000 SimpliMD Business Coaching Get 1:1 holistic coaching tailored to your unique goals. Our monthly or quarterly programs offer personalized support to grow your small business or portfolio.

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• $500 SimpliMD Build Your Business Team Guide Services Connect with experts—lawyers, CPAs, and financial planners—aligned with your professional and personal goals.

Final Thoughts

Investing in land can be rewarding, but it’s not a decision to take lightly. My experiences, from the rewarding moments of coaching a physician starting his STR portfolio to the challenges of navigating a PUD during a financial crisis, underscore the importance of thoughtful planning.

If you’re considering land, STRs, or other real estate ventures, start small, educate yourself, and surround yourself with trusted advisors. With the right strategy, real estate can help you build wealth and achieve your financial goals.

Ready to take the first step? Reach out to SimpliMD today and let’s build your path to financial independence together.