Buying Cheap Land
The stock market can be very risky. Income properties can become vacant. Homes can decrease in value. Inflation chips away at the buying power of cash. Commodities can be outright treacherous, and gold can be confiscated by the government (as happened under President Franklin D. Roosevelt). Since the founding of the United States in 1776, however, buying cheap land and holding it long enough has always proven to be profitable.
There are many approaches to the land investment business—ranging from large-scale commercial developments with many moving parts to simple long-term investments—based solely on price.
An example of the first would be the Newport Beach, California, developer who acquired 23.5 acres just off the Las Vegas Beltway in 2007 for a price of $30.2 million. A large commercial development was planned, but instead the property went into foreclosure and was repossessed by the bank. The bank resold the 23.5 acres in 2011 to a group based in New York for only $4.4 million. Sadly, the California developer lost over $25 million in just four short years.
Conversely, for the same $30 million in 2007, he could have acquired 120,000 acres ($250/acre) in the middle of “nowhere” in some Western state like Wyoming, South Dakota, or Texas. Today, in 2011, even considering the economic recession, the 120,000 acres would probably be worth between $36 million ($300/acre) and $40 million ($333/acre). And 20 years from now, it could be worth $90 million to $120 million ($750/acre to $1,000/acre)—all with no effort or expensive development plans at all, just sitting and waiting!
When an investor acquires expensive urban land, success usually relies on many moving parts such as zoning, entitlements, financing, the state of the economy, and so on. In other words, there are many “land mines” that have to be side stepped before a payday is realized, and this type of land investment is violating one of the oldest rules—namely; never place your money where others can vote on it.
Buying cheap land, with the main consideration simply being price, is an entirely different matter. Why? Because an investment like this doesn’t rely on population growth, zoning, or development. The future value of a large tract of low-priced acreage is determined chiefly by the passage of time and inflation—both of which are inevitable!