Many investors tend to look past the importance of investing in land. Something that several investors fail to consider adequately is the benefits that come with owning the land on which a property sits.
The greatest advantage to investing in land is the fact that land appreciates over time. You do not get this same benefit from buildings. No matter how great a house or apartment complex seems to be when you purchase it, no matter how low the requirements for maintenance are, no matter how much you charge tenants in rent, no matter what deductions you claim, the value of a building depreciates with time.
For this reason, a great number of investors are burned in their building investments. The land content of the investment could be only around ten percent of the cost to purchase the property, ninety percent of which is a diminishing asset. The key is owning the land on which the property sits. Then, once the value of the building has decreased below the desired amount, you have the option to replace it with something new to continue receiving income from the site.
Becoming a successful investor in the real estate market is all about handling supply and demand. You see, land is a great commodity that is limited in supply with a continuously rising demand. Unfortunately, simply owning a piece of land is not going to make you rich. You need to turn that piece of land into a vehicle to generate passive income. Many investors all around the world choose rental properties on their land to fill this need.
Building an apartment complex is easiest for some, while others prefer constructing single-family structures on their land. If you want to keep a constant flow of tenants with a minimal requirement for land maintenance, you should look into building an apartment complex.
If you would rather build a nice rental house for small families just getting started, a single unit is best. No matter which type of property you choose to build on your land, make sure it is appropriate for the location. For example, you would not build a three-bedroom home in the middle of downtown, nor would you benefit from an apartment complex at the end of a long country road.
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Before reading this article I hadn’t really thought of the benefits of land investing in this way. The land really is the only part of a property that actually increases in value.
Investing in land is something I am looking to do into the future and I will keep my eye on the real estate market.
Thanks for the info.
Excellent advice in this article Sean. Small shopping complexes are also something to consider for investments; the downfall here can be if you choose the wrong area.
Hi Sean,
This is excellent advice. Land does increase in value over time. I think investing in land is going to become even more important in the near future. As it is, trying to buy a home within thirty minutes drive of the center of most major capital cities is a nightmare.
Thank-you for driving home the importance of investing in land.
When house prices double, land values triple….if you bought the land with an option and therefore don’t pay any interest you get all the capital growth
The customized header on this landing page is pleasantly aesethic.
Advising that investing in land is a great tip because buildings can burn to the ground but the land will always be there.
Having ownership of land property can be a great investment. How often has a piece of land with a delapidated building on it become a windfall for the owner under the right circumstances?
Hi Sean,
It is easy for me to agree with this article as my heart is with the land. I have to learn how to incorporate economics within my heart, I guess. Your advice sounds like plain common-sense to me, and I look forward to opening my eyes in a new way about property options.
I think propertyoptionsblog.com.au has even better potential to be of help and use than the stockmarketeducation.com.au site – which is already containing excellent material.
Land is what I would love to invest in – after I start making money based on Sean’s learn and earn information so generously given in our comp For A Few Dollars More.
Land just doesn’t go away – whether prices rise or fall – it is still there …. and God ain’t making anymore!
Hi Sean,
Investing in property is one thing we have done a little bit of, and I know that looking at the land value is more important
We looked at a house huge block of land but didn’t buy.
Two years later the value of that land had doubled and the house was pulled down the block subdivided and each block sold for more than the asking price 2 years before.
Another advantage of land is that the council rates are lower and you do not have the issue of tenants not paying etc and the upkeep and maintenance of a house/apartment/retail outlet. With Perth trying to combat urban sprawl land prices 30 mins from the CBD and near the rail and freeways, vacant land is becoming a highly valued commodity!
Hi Sean,
You’ve hit the nail right on the head again land is a great appreciating asset, especially when it sits under a house or block of units because these will provide a cash flow to pay the financier.
I can well believe why the benefits of land investing are so high.
I was very interested in the point Sean made about once the value of the building has decreased below the desired amount, you have the option to replace it with something new to continue receiving income from the site.
This is great to know especially for future land investments.
Cath
Now this is a point that I hadn’t thought of: “the value of a building depreciates with time” – so when a property is valued – it is not so much the house, but the land that gives the real value. So is it better to buy valuable land with an old house on it – for the land acquisition?
If only we had hindsite we would all be wealthy. This post brings home that its your land which appreciates in value not your house. As an example, 7 years ago we moved to our little beachside community and we could have bought a 1/2 acre block right on the water for $135000. They are now going for $800 000. If only …………………
This is true in Canada as well as Australia. Property investments are wise and can provide the owner/ buyer with wealth beyond expectations.
Even holding on to a piece of land while the city builds up around it is prosperous. It’s not necessary, at least in Canada, to build to rent or sell. We’ve looked at several large pieces of land real estate with plans to build with strawbales in the future and know that when we have the money to invest we will see a long term return.
Land just outside of growing cities is priceless so buy it when you can as the property investment will be your best “risk” yet.
I think Jackie’s hindsight example is a tale that many could relate to. And, the difference between us ordinary punters and those who have gained real wealth in this field is that they have foresight!
It also pays to hang onto land, if you can, for as long as it is feasible financially. I remember a friend’s father who bought up lots of properties over the years – and sat on them and really made out when the town expanded. he did his homework and worked out which direction the town would spread in to – there weren’t many options lucky for him!
@ Sarah – that is the only real option nowadays in cities like Perth here. Land in built up areas – especially within 30 minutes of the CBD is outrageously expensive.
Hi Sean
Great information here and yes, land is where the value is, not the house.
We bought a 2 acre property with a large house in Montville in Queensland about 7 years ago. We did our research and realised there was going to be a boom there. We bought it for $247,000 and sold it 18 months later for $446,000. That was pretty good! In the meantime it was rented out.
My friend bought 3 properties and still has them. That’s cool!
Capital gains tax was really low too. I am looking for others like that to buy, especially over the next 5 to 6 years. But might have to wait to sell them until 2018 – 2020 for the next upswing.
Real estate can be fun. Thanks Sean.
I bought land for the sake of simply owning some territory and nobody could clear it and knock down the beautiful big gum trees. Also knowing you have something to pass on to the next generation.
In my opinion Money isnt everything but this blog has shown me that The benifits of land investing are greater than I first thought . Very good to know.
It is always good to hear success stories like Elly’s above. What a grand investment that was. There is definitely a cycle to property booms and lows. I remember seeing somewhere too, that when shares are in a downwards swing, then properties are on the upswing. If that is the case, then perhaps it will be sooner than 2018 for the next boom. Certainly here in Perth things are alive according to a real estate friend of mine.
Hi Elly,
That was such a great decision. Pretty awesome profit for 18 months work. What made you choose Montville? Is there a mine there? I think it’s amazing how you can buy a property at one time and then sell it for a handsome profit soon after.
I guess this is the whole attraction of investing in real estate.
@ Serena (doesn’t give me the option to reply directly on this site)
I heard of that problem, with trees on some land being declared endangered list and the buyer not being aware of this. I don’t believe land like this should be sold without divulging that information.
There are benefits of land investing but there’s drawbacks, too. Research is definitely something that needs to be done but the land you have will be historic and something awesome to pass down to generations.
@ Serena and Sarah. Doing the due diligence when considering a parcel of land now has to extend to not only the historical, but also the green impact and, with some councils, also their streetscaping requirements – these can be quite restrictive for either alterations or new construction
@ Peter – Which I completely agree with and know that it’s up to the buyer to determine but when making a property investment it seems to me that the seller has some obligation. When they are selling their property they should not be able to hide such facts (if they are aware of them) and real estate agents should have to disclose what they know but sometimes don’t.
If you’re buying an investment property online it gets trickier and involves more research on the buyers behalf as they need to know what they are getting into. A quick sale may not be of anyone’s best interest when it comes to property investments.
@ Sarah Caveat Emptor is the basic rule, and if due diligence is done well, all the little hidden things such as specific restrictions etc should be uncovered. Even a visit to the local government offices is worth the time to find out about council by-laws and so on.
This is not to say that the seller or real estate agent should not be fully aware and give full disclosure – but it is no help, after the fact, to find out they were incompetent or dishonest to some or any degree.
Buying online, although getting more common nowadays, I still think is a bit fraught with danger. It is a huge cost and I can’t see myself ever commiting to that size of outlay without laying eyes on it and having face to face talks with sellers.
@Elly – What an amazing experience to have such a great property investment. Success stories like yours are what rekindle my interest in doing the same.
I guess a lot of people get blinded by the big figures when buying and selling house plus land. The land itself very often is less, so it looks like the possible gain is less.
But if you look at it on a percentage basis, land increases in value much faster – and without all the running costs of keeping a house in order. I think there are huge benefits when you invest in land, as long as you still make sure you buy the right piece.
@ Renee. In addition to the general running costs there is always the need to update and do cosmetic changes – especially in high end priced houses. The latest stone bench tops, wood floors and so on – yet this may make the house more saleable, it really is the location that holds the value.