Understanding the difference between land and the actual house itself may seem obvious, but many people don’t realize that it should impact their investment strategy. Land is in demand, and as our population increases, the demand for land will increase, appreciating in value. (Side note: this is not true for all land. Some land can be undesirable because of its location, but often this is not the case).The house, on the other hand, is a physical structure which will need repairs and depreciates in value. When looking to invest for the long term, you should be thinking about the value of the land more than the value of the house. The opportunity for your maximum returns comes from the appreciation of the land.
If you are distinguishing between house and land correctly, you will come to the conclusion that the best investments may be in small, ugly, run-down homes if they are in a good location. You can buy those properties for cheap and either destroy the house and sell the lot (sometimes poor structures detract from the value of the land) or you may improve or rebuild the house. The house is always changeable, but the land is not.
A great way to get a feeling for the potential value for the land is by looking at government plans for the community. Growing communities are key places that will maximize your profit. Indicators for growing communities include plans for building shopping centers, expanding roads, new hospitals and increased public transportation. You can find out this information by contacting your economic development office or your town hall. Another area is by looking at the school system. Are the schools ranked near the top? Strong schools are an attractive aspect for parents. You may also want to look in areas on the fringe of big cities or commercial centers, because those prices will increase as the value of being close to the city increases. Spend most of your time researching the land, not the actual house, and you’ll make a better long term investment.
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Based out of Indiana, Jay Redding is a real estate entrepreneur, with experience in single family and multi-family investing.
