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7 Ways Real Estate Investors Can Finance a Land Purchase

There may not be as many ways to finance a land purchase as there are reasons, but people interested in buying rural land still have quite a few options. The following list shows what’s possible with the added benefit of pros and cons.

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How to Finance a Land Purchase

1. Cash Purchase: Cash allows an investor to close more quickly, and you don’t have to worry long-term financing agreements. The downside is, real estate is not liquid. If you make a large land purchase with cash, that ties up your liquid assets until you sell or recoup your investment. If you’re buying to live on the property or hold it long term, it could be a long time before you get liquid again. On the plus side, you’ll own your land outright, and, with a few exceptions, all the rights.

2. Owner Financing: If you have bad credit history or a low credit rating, it may be difficult to finance through traditional arrangements, but land owners can work out their own deals. In other words, a seller may be willing to finance a land purchase himself, however, you could pay higher interest rate. On the upside,  you can usually get by with a lower down payment.

3. Traditional Bank Loan/Credit Union: With bank and credit union loans, you’ll often have a higher down payment, but there is a limit to how much financing you can get through a bank or credit unions. Many credit unions won’t finance more than 10 acres or 20 acres. Closing costs are higher, and there is usually an application fee. Another downside is that banks and credit unions require appraisals, which are often paid for by the buyer.

4. Grants: There are several federal and state grants available to farmers, ranchers, and others who want to purchase land. Grants, unlike loans, don’t require pay back. However, they often come with a log of strings attached. The United States Department of Agriculture (USDA) offers the following land grant programs:

  • Rural Development- Rural Development Loan and Grant Assistance program works with ow income families in rural areas to create jobs through land development.
  • Beginning Farmer and Rancher Development Program- The National Institute of Food and Agriculture offers beginning farmers and ranchers grants for purchasing land.
  • State Grants- Some states offer agricultural grants for land purchases.

For a more comprehensive list of USDA grants, visit the USDA website.

5. Farm Credit Institutions: Farm credit institutions operate like a credit union but are more narrowly focused on land purchasing and development, particularly agricultural land. The downside is, you may have membership fees. However, you receive annual dividends. The reason farm credit institutions aren’t as popular as other land purchase methods is because a lot of people don’t know about them. Their lack of popularity is one of the reasons they make great funding sources since it could mean lower interest rates and down payments.

6. Marketplace Lending: Marketplace lending is gaining popularity. Marketplace lending platforms are popping up all over the web. Some MPL sites specialize in specific geographic areas or particular types of land purchases while others connect property owners with investors for development projects. So do both. One downside is the possibility of losing your investment should a deal turn out bad.

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A positive to marketplace lending is that you can often earn residual income on your investments. You may also realize a return on increased property values. If you’re looking for raw land, try one of these ways of financing your purchase.

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