Is Virginia Land a Good Investment?

Virginia's land market has been drawing increased attention from investors in recent years. According to the USDA's Land Values 2023 Summary, the average value of farm real estate in Virginia, including land and buildings, reached $5,540 per acre in 2023, marking a 7.8% increase from the previous year. This upward trend aligns with the broader Mid-Atlantic region, which saw a 7.1% rise in farm real estate values over the same period. Additionally, Virginia's cropland values specifically rose by 6.5% to $4,930 per acre. These figures suggest a robust and growing land market in the state, prompting many to consider whether Virginia land represents a sound investment opportunity. As we delve deeper into this topic, we'll explore the various factors that influence land values in Virginia and weigh the potential benefits and risks for investors.

Virginia's Economy: Steady Growth Focused in Key Metro Areas

Over the past decade, Virginia has benefitted from steady economic expansion. The state's GDP has grown at a compound annual rate of 2-3% in real terms since 2010. While not as fast as some other southern states, this stable growth provides a positive backdrop for real estate.

Job creation has been relatively robust as well. Virginia's unemployment rate reached just 2.8% in early 2022 before rising to 3.2% by mid-year. This remains well below the national rate of around 3.7%.

Population has also been on the rise. Virginia now has over 8.6 million residents, having added around 580,000 new inhabitants since the 2010 census.

Much of the economic energy has centered around three key metro regions:

• Northern Virginia: Consisting of Arlington, Alexandria, Fairfax County, and surrounding suburbs, Northern Virginia has essentially become an extension of Washington D.C. The influx of federal government agencies and contractors, as well as private companies like Amazon Web Services, has made it one of the wealthiest areas in the country.
• Richmond: Virginia's capital has undergone a revitalization over the past decade, attracting millennials, new businesses, and urban living enthusiasts. Finance and state government remain economic pillars, but Richmond also boasts a thriving food scene and cultural attractions.
• Hampton Roads: The southeastern Virginia metro region, anchored by Virginia Beach and Norfolk, hosts the largest concentration of military facilities in the country. In addition to defense spending, Hampton Roads offers major shipping and logistics hubs.

So in terms of economic vitality, the overall picture looks positive for Virginia, especially centered around these metro growth poles. What does this mean for the real estate investment landscape?

Demand Drivers for Virginia Real Estate

Several factors come into play when assessing the real estate market opportunity across different Virginia regions:

• Population growth: More residents means more demand for housing, retail, and other property types. High growth areas like Loudoun County are obvious targets. But even slower-growing regions need new construction over time to replace aging inventory.
• In-migration trends: Where are people moving from? In-migration from D.C. and the Northeast along the I-95 corridor lifts Northern Virginia. But other regions benefit from retirees relocating from mid-Atlantic states as well. Understand who is moving where.
• Employment growth: Job creation attracts workers, especially to business hubs like Tysons Corner and Carytown in Richmond. Look for counties and cities with major corporate expansions or relocations underway.
• Infrastructure investment: Road, rail, park, and other projects make areas more desirable for development. Arlington's emergence as an urban hub stemmed largely from the Metro system expansion.
• Business climate: Virginia scores highly for its educated workforce and business-friendly policies. But there are still regional variations in corporate sentiment important to track.

Factor these demand drivers together with growth expectations to identify the most promising submarkets for commercial and residential real estate investment.

Key Factors for Evaluating Virginia Land Deals

When assessing a specific parcel of vacant land for investment potential, several aspects are critical:

• Location: Proximity to metro centers with positive economic and demographic trends is ideal. Rural or undeveloped areas typically see less buyer interest and value appreciation.
• Access: Frontage on or near major thoroughfares, ideally with visibility. Corner lots with multiple road frontages have added appeal.
• Zoning: Land zoned for higher density residential or mixed-use commercial draws highest prices. Industrial, agricultural, or low-density residential zoning limits uses and upside.
• Utilities: Existing electric, water, sewer, gas utilities onsite or easily accessed boosts desirability. Bringing these services to a remote site gets expensive.
• Environmental: Avoid flood zones and be mindful of Chesapeake Bay and other watershed regulations limiting development.
• Competing inventory: Are there many similar parcels already on the market nearby? Excess inventory drives down pricing power.

Weigh these factors carefully to reliably assess investment potential and risk factors.

Hot and Cold Markets for Virginia Land Investing

Based on the demand drivers and investment criteria discussed, several Virginia regions stand out as attractive for land deals:

Hot Markets

• Loudoun County - This D.C. exurb continues seeing some of the fastest population growth in the state, fueling housing demand.
• Henrico County - Adjacent to Richmond's urban core, Henrico offers suburban appeal drawing families.
• Alexandria/Arlington - Urban build-out and Metro access make these inside-the-Beltway locales desirable.
• Virginia Beach - Growth in this resort/military metro helps drive new residential and mixed-use projects.

Cold Markets

• Southside/Southwest Virginia - Depopulation and limited economic prospects make much of rural southern/western Virginia a tougher bet.
• Chesapeake Bay - Environmental regulations severely restrict development potential along much of the Bay.
• Middle Peninusla - Sleepier areas between Richmond and Hampton Roads lack major growth catalysts currently.

Strategies for Maximizing Returns

To optimize upside, Virginia land investors should:

• Target metro area parcels already zoned for higher-density housing or commercial uses.
• Focus on emerging hot spots primed for population and job gains, such as outer suburbs.
• Seek sites along major transportation corridors with visibility and access.
• Hold for 2-4 years to allow local market cycles to lift values.
• Be prepared to weather temporary downturns - don't sell at first signs of softness.
• Consider ground leases for steady interim income prior to eventual sale.
• Engage local development partners to build-out complexes, boosting property values.

Factors Tempering the Outlook

Despite many positive signals, some cautionary notes are also worth highlighting:

• Virginia's economic growth, while steady, lags many other southeast states and does not drive massive value increases.
• Road congestion, especially in Northern Virginia, constrains further development.
• Environmental factors limit viability of land parcels along the Chesapeake Bay watershed.
• Local opposition movements sometimes arise opposing added density, stalling projects.
• Farmland and rural parcels are abundant, limiting speculation opportunities.

Exiting Land Investments

For investors eventually looking to sell Virginia land holdings, several tips can help maximize proceeds:

• Hire a savvy real estate agent very familiar with the local land market - they can provide critical pricing guidance.
• List on MLS but also market directly to developers - casting a wide net helps attract buyers.
• Consider creative seller financing terms if needed to expand the buyer pool.
• Be patient - it typically takes 6 months to a year to sell vacant land in Virginia.
• Weigh offers from land buying companies that purchase for cash at discounted prices - this provides faster exit timing.

Final Thoughts

While no market is without risks, Virginia currently presents a compelling opportunity for selective land investments. The state's diverse economy and positive demographic trends help support real estate broadly. Targeting metro area parcels in high-demand submarkets like Loudoun County gives investors the best chance to realize appreciation over a medium-term hold period. Just be realistic about returns and diligent evaluating deals. Virginia's steady growth trajectory bodes well for investors who enter with care.

Frequently Asked Questions (FAQs)

Is now a good time to invest in land in Virginia?

Now can be a good time to invest in certain Virginia land markets that are seeing strong population and job growth, like Northern Virginia and Richmond metro areas. Lower interest rates and demand from millennial homebuyers support the market. However, infrastructure constraints in some regions along with environmental regulations limit development in parts of Virginia. As with any real estate, it depends on the specific location and parcel characteristics. Do thorough research before investing.

What yields can I expect from Virginia land investments?

For raw land held for appreciation, yields typically range from 5-10% annually on average over a 5+ year hold period. However, there is significant variability based on location - greater appreciation in high-growth regions but minimal gains in rural areas. Leasing land for farming or other uses can produce steadier annual passive income in the 5-7% range too.

Are there any incentives available for developing land in Virginia?

Yes, Virginia provides some incentives for real estate development projects through programs like the Virginia Brownfields Restoration and Economic Redevelopment Assistance Fund. This provides grants and loans for rehabbing abandoned commercial and industrial sites. Transportation funding programs also exist to extend infrastructure like roads and rail to enable development in certain regions. Check with state and local economic development agencies.

What are property taxes like on vacant land in Virginia?

Property taxes on land vary significantly by county or city. In regions with higher home values like Loudoun County, annual tax on vacant residential land can exceed 1% of assessed value. In more rural counties, effective tax rates on land might only be 0.25-0.5% of assessed value. Agricultural land often receives preferential lower tax treatment.

How easy is it to re-zone land in Virginia?

The process for re-zoning land differs across Virginia localities but often involves extensive paperwork, public hearings, and complex approvals. In high-growth areas like Loudoun County, re-zoning requests face extra scrutiny and community opposition is common. Ensure any land investment has proper zoning in place for your intended use upfront, or be prepared for delays and uncertainties during the re-zoning process.

‍