Why Investing in Land May Not Be Such a Great Idea
1. Care and feeding: Land requires ongoing cash to pay the property taxes and liability insurance, and to keep the land clear and free of debris while it most likely produces little or no income. Although land doesn’t require much upkeep compared with tenant-occupied property, it almost always does require financial feeding.
2. Opportunity costs: Investing in land is a cash drain, and of course, it costs money to purchase land. If you buy the land with cash, you have the opportunity cost of tying up your valuable capital (which could be invested elsewhere), but most likely you will put down 30 to 40 percent in cash and finance the balance of the purchase price.
3. Costly mortgages: Mortgage lenders require much higher down payments and charge higher loan fees and interest rates on loans to purchase land because they see it as a more speculative investment. Obtaining a loan for development of land is challenging and more expensive than obtaining a loan for a developed property.
4. Lack of depreciation: You don’t get depreciation tax write-offs because land isn’t depreciable.