LandThink published an interesting
article comparing
land investment and stock investment. The article was great, but I thought the best content was in the article's comment section.
A recap of the article:More Americans own corporate stock than rural land. It seems counter intuitive because stock is risky, but land is not.
People invest in stock because:
1- They are easy to buy and sell
2- They're easy to follow
3- Each company provides information
4- Stock trends lend a certain level of reliability to forecasting it's future
5- Much investing wisdom is free for the listening
6- Ordinary people occasionally "win"
Compares a land investment and a stock investment:"As a whole, Professor Jeremy Siegel of the University of Pennsylvania’s Wharton School says that stocks show an average gain of seven percent a year when the data are controlled for inflation. This average works when looking at many stocks over many years. It may or may not work for any individual stock; it doesn’t work for the three lousy decades in our memory—the 1930s, 1970s and this one.
Adjusted for inflation, a dollar invested in the S&P 500 in April, 1999 produced no gain at the end of March, 2008. The performance of big U.S. stocks amounts to an average annual rise of 1.3 percent during the past decade after dividends and inflation are counted in. (E.S. Browning, “Stocks Tarnished By ‘Lost Decade,’” Wall Street Journal, March 26, 2008.)"
Seltzer says, "
Ordinary cash-strapped, middle Americans usually do better investing in rural land."
Because--1- Unlike stocks, land investments are decipherable. The information is reasonably transparent. Buyers can learn how to assess liabilities and assets.
2- Scoping a land purchase is more like checking off a list to see if it's all there rather than trying to translate corporate reports.
3- Demand for land grows as the American population grows
In the comments, Julie remarks,
"I don’t think I would rush out and put my money into land. The trouble with rural land is that nobody is paying for it while you hold onto it - it’s not like urban land which can be a parking lot or some other rent generating building until such time as the time is right for development. And buying any type of property with the hope that it appreciates is pretty risky. It’s only one of the ways to make money in real estate. I’d rather bank on generating income from a property and having someone pay my mortgage down for me, then wait for that fickle mistress appreciation to come around so I can make my money."
Which is an interesting point, but I agree with
Robert King's rebuttal,
"Rural land can have the benefit of several potential streams of income, just as urban property. Timber harvest, farmland rents, and hunting rents are all passive ways that rural land can generate income. I’m sure some of you can think of others as well.
The smart money is spent on pursuing those rural properties that are, or will be in the near future “transitional” in nature. Meaning, a property that is now rural, but potentially the highest and best use may be something else entirely–a higher valued use. Properties such as these can often be purchased at rural land values, held short-medium term, generate income during the hold period, and benefit from rapid appreciation as the highest and best use changes.
5,000,000% returns is quite a lofty goal. My argument is that land only needs to be a steady 7-10% return to become a better investment than a volatile 10-15% return from stocks, but that does have a great deal to do with one’s tolerance for risk. Take a look at the characteristics of “old money” in America…especially the old money that still has money today. I’ll bet you will find rural real estate as a common thread between them."
Lastly, Richard Ward chimes in,
"As one example, DailyWealth.com likes timberland as an investment property over ANY OTHER form of real estate. Here is what he says:
http://www.DailyWealth.com – “Timberland has actually beaten the stock market since 1960 (as far back as data goes). Stocks did extremely well in that time… up nearly 12% a year. But the total return on timberland was even better, at nearly 14%. Another nice thing is timber is completely uncorrelated to the stock market. It makes sense… the trees have never heard of the NASDAQ bubble… and they don’t know what a War on Terror is.”
Also, I can appreciate Julie’s comments because I hear that objection often. I make offers on land at half-price and then quick turn it to an end-user clearing $5K or more on each deal. If I was in Julie’s position, I would look for parcels that she can get at a rock bottom price and resell them at a healthy profit.
As another option: many are dropping money in their 401K for retirement each month. I would instead step up a Self-Directed IRA, find a good buy on land, purchase the property with IRA funds and grow my money that way. Then I can sell that property at any time and the proceeds of the sale are tax deferred. Then take that money and buy another property and continue to grow your money. You are more in control with your ROI and you can never appreciate how many great buys you can find it you look hard enough.
In this economy, with the roller coaster ride with stocks, I would take land over stocks any day. It’s a no brainer…."
I enjoyed the tips and opinions in the comments. I think the consensus is that buying rural land is typically a wise investment.
Labels: buying land, Buying land in today's economy, Land Investment, tips for buying land for sale
