Why Buy Land?

Why Buy Land? By Bill Roberts 

I am always hearing people say "I would never buy raw land."  It's like they don't know that it is land that appreciates. They think that only improved property appreciates. But actually it is the land component of improved property that appreciates, not the structure. The structure actually DEPRECIATES, and eventually needs to be torn-down.

Land is a good investment:

• The costs of upkeep are low.
• The taxes are low.
• But the RATE of appreciation is greater than for the improved property next door.

As an example, assume you have a 3-bedroom 1800 square foot house on a lot. You paid $300,000.00 for it just 3 years ago. There is a vacant lot next door (if it had a "door") that was $75,000.00 at the time you bought your house. Your house is now worth $600,000.00 or 100% increase in value.

But what about the vacant lot? What is it worth now? What if you could actually build a duplicate of your house next door for less than $250,000.00 with another $50,000.00 for everything else including permits, finance charges during construction, and landscaping?

$300,000.00 to create a $600,000.00 house! Most of that difference is the value of the lot. While your house doubled in value, the lot quadrupled in value. If you knew this back then, you would have bought the lot instead of the house.

The difference in home values from one area to another is primarily the difference in land values. The cost of construction can vary but not significantly. Costs of entitlements can vary, but they don't represent the major component of the cost of a new home. So what is the major difference from one area to the next?

It's the land!

A good investment strategy for the aspiring wealth builder is to buy land in the path of progress, hold it until its area is over-taken by growth, then either sell for a massive profit or develop it for an even greater profit.

Unimproved ≠ Useless

And if you can't stand the holding costs while you're waiting then find a farmer to lease it to. Where I am in Southern California you can "lease" vacant land to nursery operations for a lot more than your typical farmer would be willing or able to pay. There are a lot of uses for vacant land.

Vacant land is also good for "storage." People in cities and suburbia need somewhere to park their extra cars and their "toys" like RVs, boats, and trailers. Some of these "uses" will actually pay enough to make payments on the land for you in addition to covering your holding costs (taxes, weed control, etc.)

The Best Opportunity

The "real money" in land is in acreage that can be sub-divided. Just like any wholesaler that breaks up large quantities of things and sells them individually or in small quantities at a much higher price, the land developer sub-divides and sells smaller lots at a much higher price.

And if he can change the "use" to the highest and best use while he is at it, he can get even more for the land. Its win-win and win again!

I like to buy land. I prefer to buy land. Give me land, lotsa land!

See also Land Banking - The Alternative To Eating Dog Food Straight From The Can

If you want to include land in your real estate investment program call Bill Roberts (619) 244-4610.