“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” -- Andrew Carnegie, billionaire industrialist
When it comes to investing, land has always been a solid choice. Many finance experts agree that investing in land is an excellent way to diversify your portfolio. There are also plenty of famous billionaires who have made their fortune in land. Today, we’re going to break down the basics of investing in land real estate.
Investing in Land vs Investing in Stocks
Before we look into investing in land, it’s important to know how it is different than investing in stocks. When you buy a stock, you own a tiny piece of that company. When the company profits, you profit. When you buy land, you choose exactly what you want to do with that land. You can transition it to another land type, lease it out, or just hold onto it and wait for the value to increase (we’ll get more into these investing methods later in the article). You have a lot more control when investing in land.
Investing In Land
There are many different ways to invest in land real estate, but today we’re going to look at the top three most popular with land experts.
1: You can hold onto the land until the market is great and you can sell it for a profit (also called the buy and hold method). Since it relies heavily on the market, this is usually the slowest way to make a profit. However, if you buy a quality piece of land during a market dip, you can sell it at a profit when the market is strong. Buy low, sell high!
2: You can invest to transition the land to its highest and best use. Transitional land is a booming market. This method will cost more, but if you find the perfect use for your land, you can make serious money off of your transitional land.
3: You can lease the land out to farmers or hunters. This requires more work but can get you a steadier profit. You’ll definitely want to work with a land expert like an Accredited Land Consultant (ALC) on the contracts to make sure you are getting maximum profits on each lease.
Benefits of Investing in Land
There are many benefits to investing in land real estate. Here are just a few.
- Diversify Your Portfolio. Land is an excellent way to give your other investments a safety net. If you invested all your money in stocks, and the stock market drops, you run the risk of losing most of your savings. Investing in land gives you safety even when other markets are down. Over the last twenty-five years, farmland has produced 5 percent annual return on average. Cha-ching!
- Limited resource. Ever wonder why people pay thousands of dollars for tiny apartments in San Francisco and New York? It’s because land is a limited resource, and desirable land will always be in demand. As Mark Twain once famously said, “Buy land, they’re not making it anymore.”
- Low effort. One thing many people love about investing in land is that it usually requires minimal effort, especially if you are using the buy and hold method. This is a huge benefit for farmers and land real estate agents who have very little free time.
Even though there are a ton of benefits to investing in land real estate, there are some factors you need to be aware of. Even though we think investing in land is an excellent idea, our goal is for you to make the best educated choice for you and your land.
- Taxes can be tricky. States and counties have different laws for taxing investment land. Here’s a great guide to understanding exactly how much you should be paying in taxes for different types of land.
- Previous uses. Previous land uses can impact the land’s value and what you can use the land for. For example, some land uses can result in environmental hazards that will cause the land value to plummet. Sometimes, it can be difficult to track down the previous land uses, especially if the land has had many owners. Luckily, if you are having trouble finding the previous uses, you can always use this Google Earth hack to see the land’s history!
- Patience. Depending on your method of investing, you won’t see returns for anywhere from six months to many years. You should only invest money into land that you won’t need in the next few years. No one likes the waiting game, but good things take time!
Investing in land is a great way to build wealth and save up for retirement. Be sure to consult with a professional and know the hottest land markets to invest in before making any big decisions with your savings.
About the Author: Laura Barker is the Membership and Communications Specialist for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and has been with RLI since October 2017.