Some people are interested in buying land, thinking that a land investment may pay off later down the road. But is this really a good idea? Here’s what you need to consider before investing in a large land deal…
Land = Big Risk
Buying land is a speculative investment. This means that for every day that you own the land, you are hoping that its value will go up, so that you can make a return on your investment. The question is, will the value raise enough, and will this raise be worth the giant risk you are taking by holding that land?
Let’s look at this economically: When you buy a parcel of land, you’ll be required to pay property taxes and insurance, on top of the direct cost of the land. With houses, it’s usually safe to assume that in twenty-plus years, the market will grant you some equity. But there’s no guarantee that land will go up in or even hold its value over time. So, while you’re shelling out thousands per year in taxes and insurance, the money that you spend on this land could have been in a bank, or invested in other ways that would actually be making you money yearly. And if you’re stuck with land that isn’t appreciating, you’ve just lost out with no returns.
Small investors probably won’t find much success in land investments. Stocks, bonds, mutual funds, and rental properties are much safer ways to invest your wealth. Land is a much better idea for large-scale investors, like home building companies and long-term corporate land investors who have the plans and the means for extensive development.