Almost everyone has wondered, “What’s the best place for my wealth? Land vs. stocks?” No one can make that decision for you, but going through the pros and cons methodically can help you make a decision. (Of course, if you’ve invested in the stock market recently, you may have learned about some of these the hard way).
Land vs. Stocks: Stock Market Pros
1. Own part of a business without investing your time in it.
Historically, business ownership is the most profitable type of asset ownership. Therefore, owning stock carries a high potential rate of return.
2. Stocks are more liquid than real estate investments.
If you choose to, you can liquidate your entire position in just one day; real estate takes much longer to sell.
3. It’s easy to borrow against your stocks.
If you are approved for margin borrowing, you can easily write a check and borrow against your investment account. Interest rates against stock debt are typically low.
Land vs. Stocks: Stock Market Cons
1. Stocks are inherently risky.
The high potential returns and high level of interest and activity in the stock market come with risks – companies go out of business, and stocks become worthless every day. Investing in the stock market will never be “safe.”
2. Stocks are volatile.
Along the same lines, stocks are volatile and are often affected by completely unanticipated factors. This volatility can create a stagnant or poorly performing portfolio, even if it is diversified.
Land vs. Stocks: Land Pros
1. Land almost never comes with unanticipated costs.
Stocks and developed real estate can both yield large losses: consider the irresponsible tenant or the hurricane damage to a residential building. Undeveloped land, however, usually comes with low property taxes – and that’s about it.
2. Land is tangible.
Owning land is owning something that won’t go anywhere. For this reason, even land that doesn’t increase in value guards against the depreciation of the dollar due to inflation.
3. It’s safer to invest in real estate with borrowed funds.
It is much easier and safer to invest in real estate using leverage; in fact, it’s often a good way to make money in real estate. This is a major difference when we consider land vs. stocks: using leverage to invest in the stock market makes the investment riskier; using leverage to invest in land may actually make the investment more sensible.
4. Land doesn’t lie.
Businesses can release faulty or incomplete information to manipulate stock prices, but you can learn the value and status of a plot of land by visiting and inspecting it. It is much more difficult to be defrauded when investing in land.
Land vs. Stocks: Land Cons
1. It takes work to invest in land.
If you buy on your own, buying land takes legwork. You must be willing to research the land, hire a speculator, and engage in a dialogue with the seller. Investing in the stock market takes a few mouse clicks. If you hire an experienced Land Banker, investing is easy!
2. Land does not usually appreciate astronomically.
Because land carries less risk, it is less likely to appreciate dramatically in value. It is also not likely to become worthless. Sometimes, a lucky investment makes stock market investors into overnight millionaires; profit related to land investment is slower and less dramatic. On the other hand, since you can’t create more land, the growth opportunities in high growth areas, can be substantial.
3. Land is not liquid.
Land is a long-term investment. For many, this is a good thing – after all, you can use leverage and loans to invest in land. However, selling land takes more time and effort than selling stocks does. It takes commitment and decisiveness to purchase a land parcel – you’ll be keeping it for some time.
As we have mentioned, no one else can determine the best investment for you. Now that you’re more informed on the costs and benefits of land vs. stocks, check out our other blog posts on the details of buying land in the path of development.