Investing in land can be a high-risk, high-reward financial move. It requires a lot of money, but it’s almost guaranteed to appreciate over time. However, that’s not the only thing you should know. So, before you buy one, know its pros and cons.
Pros Of Investing In Land
Land is a tangible and limited resource that effectively diversifies your portfolio, protects you against inflation, provides you with passive income, and secures your family’s future. To know how it does that in detail, continue reading.
1- Land Diversifies Your Portfolio
Land investment is another good option for diversifying your portfolio. As they say, you shouldn’t only put your money in one place.
Diversification reduces your risk of losing all your money in one go. For example, if you bet all your money on stocks for a single company, you can lose everything when that said company fails. With a diversified portfolio—and having land in one of them—you can still have assets when you’ve been hit with the fickle finger of fate.
You don’t need to buy land locally to diversify your portfolio. You can also buy land from other countries like Ireland. And before you do, make sure to know the intricacies of buying Irish land as a foreigner. You might also consider exploring opportunities like terreno en venta en Villahermosa in Mexico, which provides an additional dimension to your diversified investment approach.
2- Land Protects You Against Inflation
The technical term here is an inflation hedge. Aside from having an asset and an excellent addition to your portfolio, land is almost immune to the problems inflation causes to the economy and the people. After all, land value appreciates over time, and when inflation happens, its worth even improves.
3- Land Is A Tangible Asset
Just like with jewelry, land is a tangible asset. You can touch them, and they’re real. It’s different from stocks and most financial instruments, which are primarily digital or just paper sitting around. And as with tangible assets, land will always have value.
4- Land Is A Limited Resource
There’s a reason why land appreciates even during inflation. It’s because land is a limited resource. Remember the law of supply and demand—as demand rises and supply becomes scarce, supply appreciates.
In land’s case as a supply, it’ll never increase value as it’s not produced. Contrary to it, people who’ll demand it will forever increase as the population perpetually grows. However, some may have a different take on this. Regardless, if you choose the right piece of land, you’ll see how this can be true for many.
5- Land Can Be Used To Produce Passive Income
A landowner has many ways to make land provide passive income. Primarily, you can develop it for industrial, residential, commercial, or agricultural use. Once done, you can lease it to someone or use it for yourself. The passive income you can generate depends on how you develop or exploit it.
6- Land Can Be Inherited
You may already know that land is an excellent legacy asset. Meaning, you can pass it down to your family members once you’re gone. Not only does it provide security and stability for you, but it also does the same for your family’s future generations.
Cons Of Investing In Land
Now that you know how land can be a valuable asset, here are some things you should consider before getting one:
1- Land Is Illiquid
While land has a high demand, it’s still considered an illiquid asset. For those unfamiliar, assets can be categorized into liquid and illiquid. Liquid assets are easier to sell or dispose of like gold. Illiquid is the opposite. Land, for one, can’t be sold as fast as other assets and instruments. After all, buying land can be costly and requires a lot of consideration.
2- Land Comes With Expenses
Land does appreciate, but it comes with upkeep. Some of them are property taxes, maintenance costs, and insurance. So, if you keep land as is, you’ll be troubled with expenses until you sell or develop it.
3- Land Value Can Still Depreciate
It’s expected that land can maintain and even increase its value. However, there are scenarios wherein it can depreciate. For example, real estate market conditions can suddenly affect a property’s worth. You also have the development of the location where it’s situated to worry about. Nobody would appreciate a property in the middle of a bad neighborhood or a disaster-stricken area.
4- Land Development Is Risky
Often, most land investors will try to develop it to generate income from the investment. However, it comes with risks. After all, developing a property isn’t free as it requires vast capital—in most cases, securing a development loan, which comes with its own pros and cons. If the result of the development isn’t profitable, offsetting the losses can be challenging.
5- Land Can’t Be Moved
Land is a tangible asset, but you can’t exactly bring it with you—meaning it’s at the mercy of where it’s situated. As implied in the previous sections, many factors within its location can affect its value.
6- Land Is Expensive
Buying land is expensive. Despite many wanting to have one of their own, this asset is often only accessible to the financially successful and independent. And without the right resources, it can become a liability in the long run, which can be a pain as it can’t guarantee any return despite its value going up because of its illiquid nature.
Just like with any other investment option, land comes with risks. However, no one can deny its value, especially in the future. So, before you get into buying one, be sure to consider it with utmost diligence.