There are basically three main reasons land is an excellent long-term investment. If you’ve read our article entitled “The Rising Cost of Real Estate” you already understand the Law of Supply and Demand… the first reason. This Law states that the less of something there is, the more demand there is for it. Since they stopped making land a long time ago, and because the world population is constantly increasing, the demand for land increases daily.
The second reason is called Leverage. Leverage may be defined as doing more with less. Three thousand years ago, leverage was a very basic tool understood by all. The Caveman wants to move a huge rock, so he uses a long piece of wood, wedged under the large rock, and he leverages the wood across a smaller rock. He pulls down on the wooden stick, the enormous rock moves with ease. Moving the huge rock the old-fashioned way would have taken six or even ten men but it was accomplished by one man with leverage. We have many more Real Estate Investing Help Articles Now Available.
The same principle is true in real estate. A small example would be purchasing a piece of vacant land for $10,000. Rather than paying the full price in cash, you pay a small down payment and you pay small monthly payments. Let’s say you pay $250 as a down payment. You have now “leveraged” yourself into a $10,000 investment, but you only had to pay $250. You now own a property worth over $10,000 but you’ve only invested $250.
An example on a larger scale would be buying a home. You could purchase a $150,000 home and perhaps you would only be required to pay a 3% down payment ($4,500). You’ve now “tied up” a piece of real estate worth $150,000, and you have only invested $4,500 of your own money.
No other area of investing offers such fantastic leveraging opportunities. Consider buying shares of stock. Can you imagine going to your local bank and saying to the banker “Hello… I’d like to buy $10,000 worth of stock. I’ve got $250. Would you loan me the other $9,750?” She would laugh you all the way to the parking lot. NO! Banks rarely loan money on stocks. And even when they do, they want you to put in half of the money, and they put in the other half. That’s only 50% leverage. In real estate, in the $10,000 and $250 example, you have leveraged 97.5%!
The third reason land is a terrific long-term investment is market volatility. Also known as the “ups and downs” of the market. Unlike the stock market, bond market, futures market, commodities market and most other markets, real estate values do not jump around from day to day. Homes and land do not lose 93% of their value in an afternoon of rough trading. Real estate, homes and land are far more stable investments. This is one of the reasons that banks are always eager to lend you money to buy a home, but are never interested in loaning you money to buy stocks, bonds, etc… They know that real estate is a solid investment, and they know that real estate almost always goes up in value. They know their money will be safe.
You can get even more leverage by buying under the market value when you buy your investments. It is common sense really. You have heard it a thousand times. Buy low sell high. This is one of the reasons Land Auctions have become so popular. People get an honest chance at getting incredible wholesale prices on land. If you haven’t been to a land auction yet, please attend. We think you will be pleasantly surprised at the amazing bargains available at online land auctions. We have many more Real Estate Investing Help Articles Now Available.