Each investor has a “comfort zone” about loans. The leverage seeker wants the largest loan that is practical. Others may have experience or training that calls for no loans at all. They must have the property free and clear.
Most of us have a loan comfort zone somewhere between these extremes. Nearly everyone accepts the idea of some sort of mortgage. The use of OPM (other people’s money) makes sense.
The comfort in loans may affect the type of investment. Many of these “free and clear” owners prefer land as the investment. They want no improvements on it, just the bare land.
Here’s some of the benefits of investing in unimproved land. These can make a lot of sense:
1. There are no tenant problems. There may be a simple lease for farming or grazing, but only limited contacts between lessor and lessee. Often, the investment land lies unused.
2. A well-chosen land investment can result in huge profits. We have all heard stories of owners who have purchased land for just a few dollars an acre, then later sold for millions! (The key is “well-chosen.”)
3. Land is a secure investment. Even in the worst economic situations, the land is still there. Value can fluctuate, but the investment will not disappear.
4. Land represents wealth. It can be a quick source of cash for an owner to use for another investment. Land looks good on a financial statement. It adds permanence and stability to an applicant for loans or for a line of credit.
