Land is always a good investment for the long term. In past years when investors made real estate investments, one consideration was the tax shelter of certain investments. Now, with fewer shelters, real estate investments must make sense as a dollars and cents return on capital, and must stand alone as a good business move. Land has never been a tax advantaged investment and should be worth considering as a way to increase wealth. The trend has always been up.
In most cases, the land investor spends money each year with virtually no income from the investment. He has expenses of property taxes, clean-up and maintenance costs, expenditures for travel to check on the property. The opportunity for income from the land is minimal.
When an investor puts money into land it is for the potential payoff when the land is sold. It is a very worthwhile investment when the land’s price skyrockets and the “cheap” land becomes highly treasured property.
Types of Land
Land investments come in three major categories. The ultimate payoff for each of these categories can vary.
Raw Land. Unzoned rural land in its natural condition. This is usually in a remote area. It would typically take many years to appreciate significantly in value. The price to purchase is quite modest, and the costs to own it are small. The investor in this land will usually purchase hundreds of acres and then wait 20, 30 or more years to see a chance to sell at a profit. However, when that time comes, the profits can be incredible. The Florida land boom of the 1920s is an outstanding example.
Pre-development Land. This is land located closer to built-up sections and is located where there is a realistic expectation of development in the near future. It may already have basic zoning and could have utility service. The prices are higher than for raw land, and the costs to hold it are higher. But unlike raw land, the payoff can be much sooner. The smart investor picks an area where he has identified a “path of growth” and where commercial, industrial, and residential development will soon happen because it is needed there.
Infill Land. This land is between raw land and pre-development land in the sense that it offers a different kind of investment expectation. It may have been passed over for “easier” parcels during the first phase of an area’s development. It could be located in a different direction than the main path of growth of the area.
When a community was originally developed, the suburbs may have extended to a commuting range of 30 to 40 miles. Later, after better highways were developed, commuters were more willing to travel 10 to 20 miles further. These improved highways created new uses for thousands of acres of land. This is land that can be used for homes, shopping centers, industrial or other commercial uses.
Look in Your Own Area
The price and value of land varies greatly throughout the country. In some parts of the country there is practically no raw land available. In other sections there is plenty. Some areas have pre-development land, but it is so obviously “in the path” that the prices are already very high for the investor.
In some areas, pre-development land may take a skilled, experienced investor to recognize just what can be used soon. The investor who takes the time to study and can recognize what others don’t yet see, will be the one who makes these profits.