Land barons have consistently increased their asset holdings by investing in acres upon acres of land across the country. But between buying land and buying property, which is the better investment? If you are ready to be patient or have a strategy for monetizing the resources on your land, returns can equal, if not exceed, profits from property.
Still, you can’t underestimate the risks attached to buying land vs. property. But just as with developed real estate, there are financial rewards in land for the discerning investor. Both these sectors, particularly in the last decades, have experienced volatility that’s made consumers question conventional wisdom.
To give you a clearer picture, let’s explore the pros and cons of land and property to determine which the better investment is.
Land vs. Property: Which Has More Advantages?
There are existing state and federal regulations that concern your land buying and taxation interest payments. You can take advantage of a tax deduction on your income, sometimes for up to 16 years with land ownership. Once you’ve identified the current and future land demands for an area, there’s always room for an ultimately good growth plan.
Buying Land is Cheap
Compared to property, and as most sales are private, there’s little in terms of credit checks or other paperwork when purchasing land. With an average price of $2,000 an acre for farmland and $3,200 for underdeveloped land, associated costs beat those of investments like property.
Owning Land is Low Maintenance
Owning arable or raw land has no maintenance costs, no property to manage, or tenants to deal with. Besides your property taxes, all you may need to do is check your land for squatters once in a while.
Fair Market Competition on Property
As many investors have little time for holding, flipping, or developing land, there’s little competition over the fully developed property. You can find some lucrative deals in such a light investor interest segment.
How Can You Buy Land as a Viable Investment?
With land, you must have a strategy before buying, which will determine how you’re going to make money. While property tends to devalue with time, the opposite is true for land. If you plan to buy and hold, this type of investment is recommended, especially for younger investors since land value appreciation takes time.
However, depending on your goals, level of involvement, and limitations like zoning restrictions, you can invest in land and generate a return from its resources. The most popular land and property investment methods include;
Buying For Future Profitability
There are areas where you can spot signs of upcoming growth. This is particularly true in places where new connectivity such as freeways, rail lines, or industrial development will raise habitability. Buying land and holding have the main advantage of a low market value that appreciates as the area develops.
You can buy property in like areas and wait for development, but time ages houses and complexes. There’s also a higher tax rate on a developed property than for holding onto land, for which you can get tax incentives.
Buy low and sell high; that’s the technique involved in land flipping. At the moment, rural, agricultural and recreational land is ripe for investment. This is not like the buy-and-hold approach since the motivation here is to sell land. The timeframe between possession and sale is also shorter.
One challenge that often comes up is finding land that’s undervalued. Sellers may list cheaply only because the land has an issue, such as being in a flood plain or having soil unsuitable for structure development. Contaminated land, such as where the previous owner dumped hazardous waste, is also something to look out for.
With land, you have the flexibility for use that’s not present when you buy property. There are many ways you can develop your land so that it’s an income generator, which also increases its value. As a landowner, you won’t have to worry about leases and how they’ll affect any property you develop on them.
That said, developing land isn’t a short-term investment, and it will have financial demands. It would help if you also considered the local zoning laws. That’s essential for out-of-city limits or rural land, which can affect your investment’s liquidity.
Buy To Lease Land
You can create passive income with land bought and then leased out for rental payments. An alternative when you have a large parcel of land is to lease a portion to offset taxes, interest, and other expenses. The only downside is that tenants tend to develop structures on your land that may not be consistent with your plans.
What Are the Risks Associated With Buying Land vs. Property?
It’s only proper that you understand the risk in land investment and especially farmland ownership. Since 2009, commercial developers are no longer able to convert agricultural land into residential or business developments. As a result, land value depreciated by approximately 3.2%.
As the property market went into depression in 2008, decreased land values meant that equity borrowing became unavailable for farmers who couldn’t finance their next crop. Agricultural farmland investors defaulted on their mortgage loan payments, and the sector had to hit the reset button.
Today, land values have been appreciated significantly. An acre averaged for $2,350 in 2008 is now valued at $3,160. Accumulated equity on land is appealing as a lucrative option than meager profits in farming, and farmers are converting it for sale.
While there are risks to buying both land and property, the upsides are significant. It all depends on the strategy you employ for increasing its value or generating active and passive income. You can find land at market value by emphasizing entitlements such as subdivision, zoning, and development rights.