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What is land speculation?

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Quick Answer

Land speculation refers to the buying of undeveloped land in the hope that it will rise in value, notes Investopedia. Most land speculators buy land in areas where they expect to see a building boom. This gives them the option of either selling the land to developers at a high price or developing the land themselves. However, land speculation is often rife with problems that make it a very risky investment strategy.

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Full Answer

When land speculation works, it is entirely possible to see massive returns, per Investopedia. However, buying the land at a cheap price and holding it is very difficult to manage. Land in building boom “hot spots” is often priced at a premium years before developers arrive. This means that land speculators must buy the property even earlier.

Not all hot spots boom as expected, which means that one property may turn into a complete bust, according to Investopedia. This leads land speculators to hedge their bets by purchasing properties in multiple areas. This requires a lot of spare capital, especially when there are no returns for years. Investors should only consider land speculation if they can afford the initial costs, mortgage and property taxes. They must also prepare for no return on this investment for up to five years.

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