Investing in Land vs Buildings

Today I had an interesting situation come up with a home owner. My client wants to sell his four bedroom split-level home on five acres of wooded land. He had listed the home with another agent that had failed to sell the property in the past year. When it came time to agree upon the price he was surprised that I was actually raising the price over last year=s asking price. He was a bit confused because the price went up fairly significantly when home prices in the area have flat-lined over the past year.

The key to the price increase was in the value of his land. My opinion on investing is that land will continue to increase in value in the coming years even though home prices may see little appreciation in many markets throughout the United States. My reasoning is that as Wil Rogers said “They aren’t making any more of it.” A single family home can be constructed on as little as a quarter of an acre and town homes can be even more densely built. The cost of new construction should be kept fairly in tact with all of the competition that will come about from less buyers and the same number of builders. However, land will continue to rise in value in most markets in the United States.

Concerning my client the land value has recently risen for two reasons. Number one his property has recently been annexed by the local town which allows him to get city services that were not available before. He is able to get city sewer, city water and several other benefits to becoming annexed. The developments that had previously been to the North of his home have now completely surrounded his home. Builders that are running out of land to build on will now look at his land as a viable opportunity to build more.

As an investor or home-owner you should consider the future potential of land that you own or are looking to buy. Ask a lot of question of the nearest city and of your Realtor. Check and see if your land can be subdivided so you could sell part or all of it in smaller pieces. It becomes more valuable and easier to sell when this is a possibility. Land may be a more long-term investment because it often takes years before the prices will change dramatically on land, but often when they do the value of the property can increase in multiples. There are some downfalls to owning land long-term. Often the owner is paying taxes on the property and not bringing in any income. Land ownership can be an easy way to get into investing. I often see acres of land selling for a few thousand versus the hundreds of thousands that homes and investment properties sell for.

Look for land with easy access to major highways and Interstates, or land that is in scenic areas with rivers , lakes or the ocean bordering the property or nearby. These are a few pluses that will accelerate your values and make it easier to sell when the time comes to cash in.

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