by Marija Josifovska
by Marija Josifovska
Relying solely on your paycheck isn’t enough. If you want a secure financial future, you should start accumulating assets. You might be wondering, is land an asset? The answer is yes, and investing in land properties is a great place to start. In fact, 90% of millionaires got their wealth by investing in real estate. And while this practice is often considered a way for the already rich people to pass on their fortune to their children, it isn’t necessarily true. Even those with little resources can use real estate to build their assets and leave a legacy.
In today’s read, we’re presenting seven key reasons why you should build your assets by investing in land properties and securing your future.
Is Land an Asset?
Land on a balance sheet is categorized as a fixed asset as it’s often the least liquid asset a company or person owns. The land’s usable life span is almost infinite and its value can’t depreciate over time.
Regarding real estate investing, your asset might naturally appreciate with time, but you can also force appreciation. Natural appreciation happens as the real estate market expands. However, you can do several things to force property appreciation. For example, you could build a house or another construction. Similarly, if you decide to sell your land, you could replace the roof on an existing building or renovate it to raise the property’s price.
A Piece of Land Is an Inflation Hedge
In times of inflation, your land investment could act as an inflation hedge. Over time, cash loses its purchasing power. So, if you’re simply keeping your money in a savings account, you could be highly impacted by the annual inflation. On the other hand, investing in land can help stay up with or even beat inflation. Of course, the land’s condition matters, as does the local market, but the real property value usually increases with inflation.
Land Is an Easily Transferable Asset
Real estate is quickly passed down through the generations. Usually, trust funds are the easiest option. The trust keeps the real estate assets, and when the grantor dies, the trust automatically transfers ownership to the beneficiaries. Real estate transfers upon death are far less complex than corporate transfers involving salaries, contributions, and more.
Real Estate Provides Steady Income
Generally, real estate has low volatility because there will always be a need for properties. Although there are down years, real estate consistently rises over time, and, as a result, cash-flowing properties offer consistent income. Therefore, a piece of land can be a reliable source of income, making it an excellent way to pass down money to the next generations.
One of the great things about real estate is that it gives you many options. For example, you can build on it, rent a portion for farming, or subdivide. Holding and selling the land at a profit is one strategy, although that is more short-term than generational. You could also consider other, more innovative options to make your land pay for itself and generate income. For example, harvesting timber, planting a vineyard, and starting a parking lot business are viable long-term options.
Land Ownership Secures a Financially-Sound Retirement
After retirement, you might rent or lease your property to make profits. Land requires little-to-no maintenance so investing in land is the safest option to make a consistent monthly income and enjoy your financially-sound retirement days. Arguably the quickest way to profit from your land is to divide it and sell individual parts of the plot at a good price.
Buying a Plot of Land Doesn’t Tie Up a Lot of Cash
Real properties are bankable assets, so you could always borrow against them. Investing in land doesn’t require a lot of money upfront. You can put down as little as 10% and use the money from the banks to build your investment. Unlike the stock market, where many factors are outside your control, your money won’t disappear overnight. In real estate, only individuals who bought at the market’s peak but sold at the wrong moment or who took too much equity out of their land and sold it with little profit margin lose money.
A Land Investment Helps You Diversify Your Portfolio
Investing in land is a great strategy to mitigate risk, especially if you’re putting a lot of money into other ventures. By diversifying your portfolio, you’re able to spread out the risk. Most financial experts advise diversifying your portfolio so you don’t lose everything in one fell swoop if the market in which you’ve invested substantially goes down.
Land Investing Comes with Tax Benefits
Since ordinary income is taxed at a higher rate than investment income, it’s wise to prioritize building up your investments and produce a future investment income stream that will be taxed at lower rates. Moreover, mortgage interest, cash flow from investment properties, running expenses and charges, insurance, and property taxes are all tax-deductible.
In Closing: Is Land an Asset You Should Consider Investing In?
While real estate is beneficial to the wealthy, it’s not necessary to have a seven-figure net worth to benefit from investing in land properties as an asset-building method. Real estate is a fantastic choice if you’re looking for long-term investment rather than a quick profit.
If you’re unsure what to do, start small. Buy a plot and consider using one half and renting the other. The leased-out portion can usually cover the mortgage and taxes, and the mortgage can be paid off faster than usual. Then you’ll own the asset outright, and you’ll be able to lease out both halves for a high return on investment or consider creative ideas to make the land pay for itself.
Finally, keep in mind that land investing isn’t one-size-fits-all. Your goals will determine where you should invest your money. No rule says you have to stick to one type of investment. Quite the contrary, diversifying your real estate portfolio is an excellent method to find out what works best for you while protecting yourself from losses in a single area.