Land has always been a staple of the American Dream. From the Homestead Act of 1862 to the ongoing battle for Amazon’s second headquarters, Americans have held the desire to own and prosper from their own land close to their hearts. While owning private property today is different in many ways than land ownership in the 1800s, many of the same benefits still remain. Owning private property comes with a lot of hidden benefits for you both now and for years to come.
Before we dive into the many benefits of private land ownership, let’s distinguish what separates private property from public. Private property is land that is owned by individuals or corporations. The owner of a private property has the right of use, lease, and occupation over the land.
Public properties, on the other hand, are owned by public authorities. This land does not belong to any one person. That means the use and occupation of public land is decided on by committees and political groups instead of individuals. Owning private property makes it much simpler to decide what to do with the land. Let’s take a look at some other benefits of private land ownership.
Your land, your choice
The most obvious (and biggest) benefit to owning private property is the freedom to do what you want with your land. Of course, you still have to follow local and federal law, but how you use the land is largely up to you. This is a huge benefit if you’ve been eyeing some land as a potential transitional property and you are able to find its highest and best use.
“Transitional land real estate properties are diamonds in the rough and being able to identify and properly market these types of properties can be quite lucrative,” said Bob Turner, ALC, 2016 National President of the REALTORS® Land Institute during his presentation at the last National Association of Realtors® Conference and Expo in Chicago. Owning private transitional land means you may just get to pocket the most profit.
Supply and demand
Land is a limited resource. You can’t just create more land. That’s why land real estate in areas like California and New York is so expensive. There is only so much land to go around, and everyone wants some. Even when the market is bad, people still need land to grow crops, raise livestock, and build homes on.
In the current economy, you might not even be thinking about putting your private property on the market. Especially since owning property now can be seen as insurance against the next economic depression. Plus, keeping your land in good condition ensures that future generations will have a limited resource to profit on should tough times come around. Timberland, a long-term investment that can sometimes see very little return in the first few years, is a great investment for this very reason.
“One favorable characteristic of timberland is trees continue to grow in volume, and thus value, regardless of what is going on in the current economy,” says Bob King, ALC, with Resource Management Sources in Anderson, SC. “If timber prices are unfavorable, the timber can be stored on the stump and allowed to grow until prices become favorable again. This cannot be said for other investments like stocks or gold.”
Historically, some investments in land have had better returns than the broad equity markets. Farmland investments have averaged a steady rate of return over the past two decades. It is also an excellent way to diversify your stock portfolio. Farmland values do not always mimic the market, so if other stocks plunge in value, you are less likely to lose all your investment money. People who invest all their money in a certain market or stock tend to risk losing it all when the market turns, so assets like land real estate can help balance out a portfolio and make it more stable.
The gradual increase in value makes land a great retirement investment. Land, especially raw land, comes with tax advantages that even the most seasoned investor might not know about. “Some investors may not realize that property is a permissible retirement asset, but tax-advantaged savings vehicles like IRAs and 401(k)s can own a house, commercial building, or vacant land the same way they can own stocks,” says Bill Humphrey, CEO and Co-Founder of New Direction IRA, in Louisville, CO, in a guest post for the RLI blog.
Tax benefits of private property
Depending on the type of land you own, you could be entitled to certain tax benefits. For example, with vacant land, you can elect to add your expenses to your land’s cost basis. This can significantly decrease your taxable gain. In addition, the ability to take advantage of 1031 exchanges to defer taxes after the sale of a property when purchasing a new one is a big benefit to landowners.
According to Suzanne Goldstein Baker, the Executive Vice President and General Counsel of Investment Property Exchange Services, Inc., “The agriculture community benefits broadly from Section 1031 like-kind exchanges. Farmers and ranchers use §1031 to achieve operational efficiencies by combining acreage to acquire higher grade land, and making the economics work in conservation conveyances, exchanging easements or title to environmentally sensitive land for more productive, less sensitive tracts.” Additionally, in her article for the REALTORS® Land Institute’s Terra Firma Magazine, she explained that, “Retiring farmers are able to exchange their most valuable asset, their farm, for other real estate without diminishing the value of their life savings.”
Although private land ownership comes with many benefits, it has been on a slow decline for years. This is a result of many factors. Some people are wary of investing in land real estate after the housing crash of the early 2000s. Huge companies like Google gobbling up thousands of acres of land also doesn’t help. We hope this article inspires you to take advantage of the many benefits private land ownership has to offer.
If you are interested in owning your own piece of land, make sure to use RLI’s Find A Land Consultant online search tool to find a qualified agent in your area to assist with your purchase. As Accredited Land Consultant Ray Brownfield with Land Pro, LLC in Oswego, IL, says, “Truly the best thing someone interested in buying land can do is retain a professional real estate broker who is a member of the REALTORS® Land Institute and is an expert Accredited Land Consultant (ALC). This individual will represent your best interests and at the end of the day save you time, and money, making a land investment an enjoyable long lasting experience.” Land transactions require the specialized expertise of an agent with education and experience in the field, so make sure to find one before stepping into your own American Dream property.