If you’re tired of relying on the unregulated roller coaster that is the stock market these days, despair at the pitiful interest your savings are earning, or simply want more control over your financial future, this article is for you.
Today, I want to talk to you about why land is a smart, reliable asset that should at least be a part of your wider investment portfolio. I’ll also cover some disadvantages and misconceptions, too.
Yes, I’m biased, but this is something I know a few things about! Frankly, I wish I could have a one-on-one conversation with everyone about this very topic, but you’ll have to settle for this article.
What Makes Land A Good Investment
Let’s get right to it. Why is land considered an asset and therefore something worth buying and holding for the long haul?
- Land always has value. Unlike a stock, the value of land will never be zero. Even in a Mad Max-style post-apocalyptic dystopia, land has a value and purpose. Sadly, you can’t say that about a mutual fund.
- There’s a limited supply. You’ve probably heard the quote attributed to Mark Twain that says “Buy land, they’re not making it anymore.” Not only is there a limited supply of land, there’s only so much land that’s buildable or zoned in a particular way. This natural scarcity can create appreciation in value over time.
- You can do things with land. Also unlike a stock, a mutual fund, or the digital 1s and 0s in a bank account, land is a tangible asset. You can camp on it, park your RV, and enjoy the space. If you have title on the property, you can build on it or improve it, further increasing its value.
- The worst case scenario of buying land is you own land, something that always has some value. Like any investment, there’s risk you lose money, but you won’t lose all of it.
But There Are Some Downsides Too
There’s no such thing as a perfect, risk-free investment. Land is certainly no exception. Here are a few downsides to consider:
- There are costs of ownership in the form of annual property taxes you’re required to pay. However, usually these taxes are small and easily manageable. The taxes you pay on vacant land in particular will be significantly less than what you’re paying on a home you own.
- Land is not very liquid. Liquidity is the ability to quickly turn an asset back into spendable cash. While all land can be sold, it does take some time to do. If you find yourself in a cash crunch, your source of emergency funds should be your savings account, not your land portfolio. I would alternatively argue that this actually makes land a good investment vehicle, because your funds are effectively secured in a “land bank” of sorts and can’t be easily cashed out and spent. Land keeps you disciplined!
- Appreciation is not guaranteed. No one knows the future, and some land might not appreciate much over time. Natural scarcity favors the land investor overall, but unforeseen circumstances like a zoning decision or a random industrial accident can negatively impact the value of land.
I believe land should be a part of everyone’s investment portfolio. By all means, invest in a basic low cost mutual fund, but consider land too. If you’re more hands-on with your investments, consider land somewhere in between a bond and a stock. It’s stable and reliable, and in times of economic volatility, I think it’s the perfect asset to buy and hold on to.
Don’t think that land is some kind of get rich quick scheme though. You’ve probably heard stories about someone who bought some land in “the path of development” and made a hefty profit when a deep-pocketed developer came along and bought their land. Yes, that definitely does happen! But it’s more the exception than the rule, so don’t, uh, bank on it (lame pun intended.)
I think if you’re starting out, think of land first as an asset you can use. Even if you’re not sure the acreage you buy will appreciate x% over 20 years, the primary reason you’re buying it is to secure a great vacation spot for you and your family, a future retirement home, or something to hand down to your grandchildren. Above all, know that the land you buy will always have value, and typically makes a great long term investment.