by Laura Mueller
Real estate investor Louis Glickman once famously remarked that “the best investment on earth is earth.” And it’s a sentiment that holds true today. Here are three reasons why.
1. It doesn’t depreciate
Land you purchase can certainly decrease in value, which is a risk you take when you make any investment. But in the pure accounting sense, land doesn’t suffer from inherent depreciation the way that other types of assets do. Depreciation refers to uncontrollable value loss that happens as an asset ages and gets worn out. Land, however, doesn’t get worn out as it gets older. In a report on property depreciation, the Internal Revenue Service stated that land doesn’t depreciate because it doesn’t have a determinable usable life. This is good news for investors, who often make cheap land investments in the hope that local advancements over time will increase their property’s value. So take your time and wait to find that perfect buyer—you don’t have to worry that your land will depreciate while you do. Speaking of…
2. It’s inexpensive to hold onto long term
There isn’t much capital that goes into maintaining a land investment once it’s been purchased. Maintenance and general upkeep is usually minimal, as are property taxes. And depending on how the land is financed, there may not even be any mortgage payments to deal with. This is good news for investors, as it allows them to essentially “set it and forget it,” picking up well-priced properties and holding on to them until the right sale opportunity comes along. And because it’s a non-depreciating asset, there aren’t any hidden costs either to holding onto a land investment long term.
3. Agricultural land prices are increasing
The world needs farmers, and farmers need land. And fortunately for land investors, agricultural land in the U.S. has been on a steady incline. The USDA’s 2018 Land Values Summary report noted big gains on cost per acre of various types of farming land. From 2017 to 2018, cropland increased to $4,130 an acre (a $40/acre gain) and pastureland increased to $1,390 an acre (also a $40/acre gain). Farm real estate that includes land and structures increased to $3,140 an acre (a $60/acre gain).
While the U.S. has plenty of agricultural land for sale, there is still only so much to go around. Banking on the value of farmland has been—and continues to be—a strong opportunity for investors, especially those who focus on the Corn Belt Region where agricultural land sale prices are usually the highest.
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