Real estate investing is valued based on many different aspects of a rental property regardless of its type. When we evaluate the market value of a real estate property, it is more often than not that the majority of the value goes to the market value of land. This is a well-known law when it comes to real estate investing. Land is the scarcest resource on the planet; it has a limit and can’t be expanded. The inability to produce new lands along with overpopulation has caused the market value of land to hike up dramatically in the last decade.
A common question that always pops on the mind of any real estate investor is: How much of an effect does the market value of land have in terms of real estate investments? The answer is simple: Land is the most important factor in terms of the success of your real estate investment. Purchasing a real estate property with a piece of land holds great value to any investor. The appreciation of land is a certainty because of city expansions, overpopulation, and the healthy real estate market.
To classify the market value of land, it is very important to understand its importance. Every piece of land has a different price, appreciation, and significance due to its location and size. Real estate investors who purchase land as a form of real estate investing are more than likely to benefit from great financial returns on their initial investment.
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Importance of the Market Value of Land in Real Estate
There is no doubting that real estate investments are one of the safest investments around the world today. Real estate is a secure and valuable investment that can be held by its owners for years in order to achieve the level of profit they expect. While real estate properties themselves almost certainly undergo some appreciation, the market value of land in urban areas is ever rising in today’s world. Urban areas are expanding as there is more and more migration to these locations in search of jobs and economic opportunities. This creates a chain of supply and demand for new lands and ultimately residential properties for people to live in.
All of us have read some stories or articles about landowners in New York or Los Angeles who bought a piece of land decades ago for incredibly low values only to be rewarded with insanely high returns years after. This is the full power of the market value of land. Even till this day, people who have money to buy land in the most expensive of neighborhoods in big cities are finding it a worthy investment. This is because the market value of land is always on the rise in urban areas.
To illustrate this further, let’s take New York City as an example. In 2016, the average price for a 3 bedroom single-family home was $3,500,000 until March. That value quickly hiked up and 3 months later, in June of the same year, the average price of a 3 bedroom single-family home was valued at $3,700,000. This is a total of $200,000 in profit due to real estate appreciation in the value of land and a rise in price/SqFt.
This rule applies to most major cities where population growth is consistently on the rise. The market value of land will always ensure that your real estate investment will have a certain level of success to it.
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Investors who are not able to purchase land in major cities due to the high prices usually revert to strategic planning of their investments. This means that an investor will look to developing or booming cities that have a lower market value of land currently. The purpose of such an investment is a long-term one that can pay dividends if done correctly.
Investing in land in developing areas needs some understanding of the economic situation of the particular location, its growth, and the growing population there. Before investing and determining if the market value of land will increase, an investor should ask real estate agents in that area about demand for real estate – whether it is increasing at a certain level or if it has a very slow progression rate. If an investor is willing to take a risk by purchasing land in a growing area, any chance of it paying off will result in enormous amounts of profit in the long run.
Variety of Options
What makes the market value of land ever so increasing is that it is an entirely flexible asset. Land is the base of all real estate properties: residential, commercial, or industrial. Owning a piece of land in a desirable location gives the investor leverage and options on what to do with the land. A real estate investor or a real estate developer can buy a piece of land and build an apartment building where it stands to make a lot of profit from the sale or rent of apartments.
The flexibility of land ownership extends beyond this. Owning land that is desirable by other investors or corporations for their own uses gives you leverage when it comes to the market value of land. A company or a government can approach a landowner and offer him/her a substantial amount of money in exchange for selling the land to be used for other purposes. Many investors have an eye for this type of land sniping of strategic locations that can be of massive value to the bigger players in the market.
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The market value of land and its importance in real estate investing is closely related to the economic situation of the area of investment. As an investor, it is your job to understand how the growth pattern, the appreciation rates, and the use of the land for a period of time. Land is the most valuable form of asset investment in the real estate market. Planning or zoning laws from local authorities can restrict land supply in many urban areas. These laws are sometimes enforced to prevent the overpopulation of certain cities, which means that owners of land there benefit more because of the lower supply of land. These restrictions ensure that urban land has a much higher price in both the short and the long run. The market value of land is the main pillar which profit in real estate investing depends on.