Think Like An Investor
September 24, 2010
I often deal with clients who want to own land, but do not view themselves as land investors. I think that's a mistake.
Land is a capital asset. For many people, buying land will be the biggest investment they make in their lifetime, except perhaps for their home.
If you are buying land, whether it's primarily for timber, hunting, fishing, a home site or any other reason, you are investing. You perceive the land to be more valuable than the money you give for it. You purchase land with the expectation that the ownership experience will benefit you in some way. You are looking for a return on investment, whether it's measured in dollars, trophy deer, family memories or something else.
That's why you should approach your land purchase like you would any other investment -- based on knowledge and objective evaluation criteria. By thinking like an investor, you can put facts ahead of emotion.
First, you need to know how professional land investors evaluate property. You must be wise about how you invest both your time and money, avoiding people and circumstances that get in your pocket or waste your time.
Investors (at least the good ones) go through a process of learning everything they can before they invest. They study the physical characteristics of the asset, they understand the market, they learn who their competition is, and they discover what kind of professional advice they need. No matter what their goal for the land, they approach it in a businesslike manner.
Successful investors possess the ability to do two things:
- Recognize an opportunity when they see it;
- Act quickly when that opportunity presents itself.
Being able to pull the trigger on a deal is a function of having your finances in order, which we discussed in an earlier column. You need to know how much you can spend, and where that money will come from. But recognizing a good opportunity is more difficult, and even pros can struggle to determine the value of land.
That's because no two pieces of land are exactly the same. What is land worth? Well, it depends. Factors like location, access, water sources, timber, zoning, wildlife, topography and market trends all impact land value and desirability, and all of these can vary in importance depending upon where you are looking. These physical characteristics are what determine the potential usage of land. And since a property's value is ultimately based on how it can be used, here is where the value is determined.
So what do you do? How will you be able to know an opportunity when you see one? Well, a little research and a lot of common sense go a long way. In order to assess value, licensed land appraisers go through a process that includes developing a list of comparable properties and then adjusting these "comps" based on their unique characteristics. Most of the information an appraiser uses is available to the public, so you can find it as well.
Spend a little time in the tax assessor's office looking up recent sales. Make a list of desirable characteristics like water, timber, frontage and topography. Get a feel for raw land value, or the value of the "dirt" alone. Talk to a forester, a land appraiser, or a land lender about the values of improvements and natural resources. Meet with the county tax appraiser. Try to determine local market trends. Are land values going up, down, or remaining stable? In time, you'll get better at estimating value.
But remember, the goal is not to become an appraiser. The goal is to spot an opportunity before someone else can. That's what investors do.
ABOUT THE AUTHORDon Webb is the author of "Maximizing The Land Ownership Experience" and president of Greenwood Land Company, which provides land acquisition and consulting services. Contact him at (706) 575-4178 or go online to www.greenwoodproject.com.