It’s no secret that investors here in the U.S. and around the world are very nervous and uncertain about where to put their money amid the current COVID-19 crisis. The volatility of the markets ‒ from equities to bonds to commodities ‒ over the past few months tells a grim story about investors’ portfolios.
The Dow Jones Industrial Average, which has since bounced back quite a bit, initially dropped 30 per cent of its value when the COVID-19 crisis hit. But we don’t know if it’ll continue to recover or drop drastically again. Not good if wealth preservation is a priority.
So for investors searching for peace of mind, where should they put their money?
One investment class that often flies under the radar, but offers strong long-term growth and stability, even in times of uncertainty, is land.
Whether it’s for farm, ranch, timber, recreation, or commercial development, land is the oldest and most reliable investment class in existence. But when people typically think of real estate investments, they associate them with rental properties, commercial properties, and foreclosures. They often don’t think of raw land as an investment and end up missing out on many significant benefits.
• Low Correlation to Other Investment Classes
Land is a safe bet because its returns have little correlation to stocks, bonds, precious metals, or commodities. For example, during the financial meltdown of 2008, land didn’t fall in a single quarter.
• Land is a Limited Resource
Land is a limited resource that is relatively inexpensive to own and requires little maintenance. A growing population is encroaching on land acreage and the result is that it consistently outperforms other asset classes over time.
• There is Limited Competition
There is little competition in the land market because most real estate investors are focused on other types of investments such as rental and commercial properties.
• Land is a Long-Term Play
There is a large profit to be made in land ownership, but it is not a get rich quick scheme. As a long-term, tangible asset, raw land doesn’t wear out or depreciate. It produces enormous wealth over generations, both through appreciation and rents. This outpaces stocks, gold, and many other assets.
Here are a few examples of ways to make a profit through land ownership:
Buy and Hold – Purchase land at a good price, hold and sell after appreciation.
Establish a Farming Lease – Farmland has historically produced larger returns than stocks, bonds, and mutual funds over the long run. A landowner can normally earn enough from agricultural leases to cover the taxes and insurance and still make a small profit. However, keep in mind that farmland is normally more expensive and will require more capital to get started.
Establish a Hunting Lease – Hunting lessees normally take excellent care of the property they are leasing. They also do a great job of patrolling the property and keeping away poachers. As in a farm lease, landowners normally earn enough from a hunting lease to pay the taxes and insurance.
Offer Owner Financing – Land loans can be difficult to secure from traditional banks at times. Offering a buyer owner financing is a way to sell the land and earn interest. Most owner financing deals offer higher interest rates than traditional banks.
Raw land ownership can certainly be a great investment for someone looking to diversify their portfolio.
Jason Burbage is president of National Land Realty.