What is land hacking? Should it be your next real estate investing opportunity?
Note that the information provided herein should not be considered financial advice. I am not an accountant, and recommend seeking professional guidance specific to your personal circumstances.
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The term house hacking has become a mainstay in almost every real estate investors vocabulary. House hacking, whereby you find additional ways to create revenue sources from your house, is incredibly effective to maximize your earning potential of a house. Traditionally, you were always limited to your single family home in what was usually thought of an urban environment. What if you had more space - more land to use? More land could open up countless opportunities. Enter land hacking.
Land hacking is the process whereby you use the available land area of a property (typically an acreage) to create multiple revenue generating opportunities. It is similar to house hacking, however differs in that you create new revenues on the land, instead of within the bounds of a single family home. Examples might include a "glamp site”, a secondary structure as an ADU (Additional Dwelling Unit), a tiny house, or even a traditional garage for storage space. You can even combine multiple hacks to create a “tiny village”, if you had enough land and could meet local governing requirements.
On the surface level this seems like an incredible opportunity. Why isn’t everyone doing this then? Like many things in real estate investing, it is a simple concept, but certainly not easy to pull off. In this post I’ll help you understand if land hacking is right for you. I will take a deep dive into what types of land hacks are possible, what you need to know before you get started, and what the income possibilities might be.
What types of land hacks are there?
Land hacking might just be the most creative real estate investing niche out there. If you have the space, the only limit is really your imagination (and municipal land use bylaws, but we’ll get to that). A major part of the allure of these hacks is that they are often combined with the beauty of the landscape that your property has to offer. Whether it is a lush forest, a mountain view, a lake or river or just a clear night sky, properties that aren’t in urban areas have more of nature to take advantage of in creating a unique experience for potential guests.
Here are a few examples that I have started to see most commonly today.
Subdividing: the process by which you split the original property into multiple properties. Really, this is the original land hack. Subdividing parcels into smaller lots is what larger developers have been doing for many years, although at a larger scale. If you find a property with enough area that could potentially be serviced with road access, power and other utilities, a subdivision can be possible. From an equity stand point, it also creates a situation where the two parts can actually greater than the whole. This extra value is made possible where you can create two completely self-sufficient properties out of what was only one before. The key to this strategy is to look at zoning regulations to understand the minimum allowable parcel area of your lot. If that checks out, you will have to provide services to the land and go through a development permit process. If not, you can also look at rezoning as a possibility. If you can handle all of this successfully, you might be on to a winner.
Glamp site: think of a glamp site like high end camping in luxury. This might be free of some or all services, as even “off-grid” experiences are becoming quite trendy these days. With that said, most look to offer a luxury experience in some way, that beats out a traditional campsite. Think of something like a tiny A-frame cabin, a luxury yurt, a treehouse, or even a kitted out Airstream trailer. Increasingly, land hacking investors are outfitting these experiences with beautiful lighting and luxury accessories to create a truly instagram-worthy experience. The big advantage is that you can set these up for a few thousand dollars and a little bit of DIY equity, and be up and cash flowing in very short order.
Tiny houses: a tiny house is a step up from a glamp site in that it will typically offer full services like water, power and electricity. In some cases they are required to be zoned and permitted properly as a separate dwelling, most commonly when they exceed 108 square feet in size. Instagram is flooded with gorgeous examples of small A-frame cabins, shipping container homes, luxury geodesic domes, or traditional construction homes at a small scale. I have a soft spot for these, as they can be so incredibly beautiful but still offer many people a chance to foray into a DIY project. However, you must be careful as you are creating a full fledged dwelling, just at a smaller scale. All of the components are still there, from electrical to plumbing to heating. You can get started in a tiny home for relatively inexpensively to several hundred thousand dollars, depending on what you are looking to build, your level of finish, and how much you hire out. With that said, these can offer your guests a truly unique experience, and one that they may be willing to pay a premium for to stay.
ADU’s: additional dwelling units (sometimes termed auxiliary dwelling unit or accessory dwelling unit) refers to an additional unit added to a single family dwelling. Most typically, this is in a basement (like we’ve done in our duplex conversions) or above a detached garage. Although I suppose this is technically a “house hack” and not a “land hack”, you should absolutely keep this strategy in your back pocket to try to understand how to maximize your return on investment.
Campsites: with enough land you could certainly own and operate a campground, as long as your zoning allows it. Many of the standard real estate investing principles will directly apply. You’ll have a property manager (the campsite manager). You’ll manage nightly bookings. You’ll create a unique service offering. Even if it is not for you, it is a good exercise to use to expand your idea of what real estate investing looks like.
Lease back land: if you come across a property that is already in use for something like farming, you can purchase that land and then immediately lease a portion of it out for that same purpose. This allows you as the new owner to lease out a portion of the land to someone who has the expertise to operate it, and then use the remainder for another purpose.
Rentals & value-add services: depending on the location, many land owners can add value-add services such as bike rentals, kayaks, paddle boards and more. Or, you might simply include these offerings in your rental listing to differentiate you from the competition (and earn the right to charge a premium for a top level product).
Unique offerings: this is where it can become interesting, and would certainly depend on what interests you. Imagine a petting farm. Some goats as an attraction. Horse riding. A fruit stand. Santa sleigh tours! Imagine the fun you could have with this. What else can you think of? Really, the opportunities are only limited by your imagination and what might be allowed within the zoning bylaws in your municipality.
It is essential that you know your zoning!
The zoning of your property will make or break your deal, so be prepared to become an expert in your local zoning bylaws. The municipality zoning bylaw document, available on most planning department websites, will be your key. The two most important sections will be the specific zoning bylaws for your parcel, and the listing of definitions (often found early in the document). Those definitions will be key to helping you speak with their vernacular, and will help you understand the spectrum of structures that they have contemplated.
There’s a catch.
It is not always clear how something like a “tiny house” will be defined under the zoning bylaws. Quite often, planning departments will not have seen many people doing exactly what you are hoping to do, so there’s a good chance that you will be breaking “new ground” with your development. Your terminology might differ from theirs, and it might take a few calls to find a way to work out those details. In the tiny house example, you could potentially define it as a single family dwelling. However, if you change your plans and design slightly, you might fall within the definition of a shed, or even a temporary structure. Or perhaps they list a “guest ranch cabin” and a “cabin”, to define two completely different types of structures.
So get ready to have one, two or twelve discussions with your planning department to fully understand how you can do what you are hoping to. Be polite, try using different terms, and be creative. You might just uncover a key insight by changing a single word and unlock significant potential with your property.
How much can you make from land hacking?
That is the big question. And the answer is completely up to you, your land, and what you can creatively do with it. With that said, here’s where I’d start out. It is usually easier to purchase land with a principle residence already on it, especially for newer investors as the down payment requirements are considerably less (20-25% versus 40-50%). Given that you will already have a primary structure on the property, I would first ensure that you are in a cash flow positive situation based on renting out that structure alone. One Airbnb managed correctly, could certainly net you anywhere between $20,000 and $100,000 per year. From there, you can start to add on the land hacks, which would incrementally increase your income. Your income could certainly increase enough that you could make a living off of your single piece of land. Check out this example of one person earning $50,000 per month off of her property!
Quite simply, it is up to you. You get to decide how creative you want to be. You get to decide what your vision for your land will be, with all of the drawbacks and benefits considered. And you get to make it happen. Your best bet is to come up with that vision, and work to find the right land in the right area that will let you make it happen.
Summary
Land hacking is certainly a fantastic opportunity to expand your income with a single piece of property. You have the opportunity to truly be creative and develop a one of a kind experience. To me, that is exciting. I love the creative process and being able to build beautiful things. Of course, we have discussed that a lot of this hinges on your ability to navigate local zoning bylaws and having productive conversations with your local planning department. Try to see that as an opportunity to be creative and discover what could be possible, instead of getting lost in all of the red tape of what is not. If you can do that and enjoy it, land hacking might be for you.
What do you think about land hacking? Is it just another trend? Is it the key to financial freedom for you? I’d love to hear what you think in the comments!