In reality this is not fully true. New land is constantly being cleared as cities expand and grow, not just upwards, but outwards. I would rather change the quote to something like this: “Invest in land, it’s only getting more central”.
This is the philosophy behind land investments. As areas gentrify, as urban sprawl continues, land will grow in value. The further away the new properties the cheaper they will be and the more desirable a closer piece of land will be.
Hence, investing in land can be an excellent move. Personally, I prefer the much more cumbersome and proof-heavy process of property investing, but land investments are often more stable and require far less research.
Now, you have to be careful with investing. Should I invest in land is a dangerous question if you have no experience. Investing is a deeply analytical process that is only effective with due diligence. This means you have to do your research and ensure you are making wise choices, and not getting emotionally attached.
LOWER RATE OF RETURN
Land can be a slower rate of return. This is because you are only receiving appreciation value, it’s not a rent-able space unless you allow mobile homes. This can take away the main tool of your investing, rentals. Buying a property to see appreciation in land and structure as well as receiving rental returns is the standard form of investment.
Land is more safe, controlled and easy to maintain. But it lacks a funding source for interest repayments. Hence, we suggest if you are going to do land investing, attempt, as best you can, to buy the land outright. This will mean you can take pure appreciation returns rather than losing some to interest repayments.
PAIR WITH PROPERTY DEVELOPMENT
If you want to swing the pendulum the exact opposite direction, you can fully involve yourself in buying and developing. This means purchasing land and then developing your own property on it for renting or selling. This process has the most lucrative returns, slightly higher risk and a far larger energy coefficient for you. You will have to put a lot more work than you expect into building the property.
Even if you plan on outsourcing the work you will still find a lot of administration and technical things that take up a lot of your energy. However, if you want an investing lifestyle with involvement this can be an excellent route. It is something I have seen my father do in the US and see great success with. He managed to turn a piece of land with development that cost $400 000 (including all costs of construction) in one year into a sale for just over $500 000. He was as involved as he could be in the development living in Australia. But everything was outsourced, hence he was able to maintain his work lifestyle in Australia and dock himself a neat $100 000.
Should I invest in land? Land is stable, slow and a good starting place. It involves less risk, but has lower returns and is not great if you need to take out a loan. An alternative is to look into buying land and developing property. This has higher risk, higher reward and requires far more energy. Ultimately, be very careful investing, and do your research and due diligence.
If you are looking into investing, make sure you read our blog about negative gearing.