Land as an Investment

I deal with clients all of the time that want to own land but do not view themselves as a land investor, and I think that is a mistake. Land is a capital asset. In most cases, it’s expensive, and for most people, a land investment will be the single most expensive investment they make in their lifetime except maybe for their home. Truth be told, your land purchase could be more expensive than your home.

If you are a land buyer, whether you are a timber man, hunter, outdoor enthusiast, or stock market refugee, you are INVESTING. You perceive the land to be more valuable than the money you give for it. You purchase land with some expectation that the land ownership experience will benefit you in some way.  You are looking for some sort of return on investment, whether that return is measured in dollars, in trophy deer, memories with their family, or some combination of all of these.

That being the case, I think your approach to land ownership should be like that of an investor, and based on knowledge and objective evaluation criteria. By thinking like an investor you can better manage the process, better understand the approach, better understand the land, and better understand yourself. It’s a much better blueprint for success for land ownership.

You need to know how professional land investors evaluate and analyze property before they buy it. You must be wise about how you invest both your time and money, avoiding people and circumstances that get in your pocket or waste your time.

Investors (at least the good ones) go through a process of learning everything they can before they invest. They study the physical characteristics and components of the asset, they understand the market, they understand who their competition is, and what professional advice they need. It’s very analytical and unemotional. You need to think like that……like an investor.

Investors know they have to be able to do two things:

  • Act quickly when an opportunity presents itself
  • Recognize an opportunity when they see it.

Being able to act quickly is a function of getting your finances in order. We talked about that in a previous article, and it is pretty straightforward – Don’t buy more than you can afford. But, recognizing an opportunity when you see one is not so cut and dried. In fact, it is downright difficult, and determining price or value is the part of the process that most folks (even the professionals) struggle with the most.

And here is the problem. No two pieces of land are exactly the same. You simply can’t boil land value down to a black or white decision. What is land worth? Well….it depends. Factors like location, access, water sources, timber, zoning, wildlife, topography and market trends all impact land value and desirability, and ALL of these can vary in importance depending on what part of the country you are in. These physical characteristics are what determine the potential usage of land, and since a property’s value is ultimately based on how it can be used, here is where the value is determined.

So what do you do? How will you be able to know an opportunity when you see one? Well, a little research and a lot of common sense go a long way. In order to assess value, licensed land appraisers go through a process of developing a list of comparable properties and then adjusting these “comps” based on their unique or valuable characteristics. Most of the information an appraiser uses is available to the public, so you can find it as well. Spend a little time in the Tax Assessor’s office looking up recent sales. Make a list of desirable characteristics like water, timber, frontage, and topography. Get a feel for raw land value…or the value of the “dirt” alone. Talk to a forester, a land appraiser, or a land lender about values of improvements and natural resources. Meet with the County Tax Appraiser. Ask a lot of questions. Determine market trends. Are land values going up, down, or remaining stable? Evaluate your own comps. In time, you’ll get better and better at estimating value.

But remember, the goal here is not to become an appraiser. The goal is to spot an opportunity…..before someone else can. That’s what investors do.

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