Most of the people in today’s world are interested in investing their money in land because of the obvious benefits that come along with them.
The most prominent benefit is that land value is rising along with time. Even though this is true for more of the instances, you should also understand that complete opposite of this can take place in certain instances. This is why you should always have a strong understanding about those reasons. This will help you to reduce the possibilities where land would lose its value.
What is depreciation?
Before exploring at the reasons on how land would lose its value, you should have a basic understanding on what depreciation is all about. This understanding will help you to fight against the loss of value that your land would be subjected to. Most of the physical assets are subjected to depreciation along with time. They include vehicles, buildings, and even equipment that you use. This is applicable for the land that you buy as well.
However, land is subjected to low depreciation when compared to other physical assets that people own. This is something that you will need to keep in mind as you go ahead and hold land. Based on this understanding, let’s understand all the reasons that can make your land lose its value along with time. Hence, you can also learn how to fight against depreciation of land that is taking place, and how to overcome the negative consequences that would come on your way along with it.
Factors behind the depreciation of value associated with your land
Land is a tangible asset. However, land will not be worn out along with time. On the other hand, there is no possibility for land to be obsolete as well. This is the main reason why land would not lose its value significantly along with time. However, you need to understand that there is a determinable usable life associated with land. Due to the same reason, land would not depreciate heavily in its value along with time.
Here are some of the common reasons on why land would drop its value. If you can keep these facts in mind as you continue to buy land, you will be able to reduce the chances of your land losing its value along with time effectively.
- Increasing mortgage rates
When the mortgage rate is low, more people will be able to go ahead with buying a piece of land. But when the mortgage rates are high, people will have to face challenges as they continue to buy land. This can make the land value to drop.
Low mortgage rates mean that people are getting the chance to pay reduced mortgage payments. In other words, they will have to spend a lower amount of money along with time on the loans that they have to pay. As the interest rate increases, the affordability of lands would decrease. This will lead people to numerous difficulties when they try to afford land. That’s because increased interest rates are leading them to difficulties when making mortgage payments. This will make people stay away from investing their money to purchase land. You should have a clear understanding about this and proceed with land investments.
In the meantime, you should also understand that mortgage rate is not the only reason that creates an impact on the land buyers. This would create an impact on the sellers as well. This is where you should be extra concerned. That’s because your land will not be so valuable as people will have to spend more money out of their pockets to buy your land. Due to the same reason, you will face numerous difficulties when you are trying to find a buyer to the land. If you could previously find 50 potential buyers to your land, they have dropped to just 10 or less now. Therefore, you will be forced to reduce the price of your land. This will make the property lose its value along with time.
In a distressed real estate market, there will be a serious lack of buyers. Hence, you will not just have to sell your property at a lower price, but you will also face difficulties when finding buyers to buy it. This will make your life difficult as you try to sell the land.
- Natural disasters
Natural disasters are another reason that can make your land price go down. Therefore, you should be extra careful about the nature of impact created by natural disasters on your property as well. Natural disasters are not the heavy occasional rainstorms that your property will be subjected to. You can even call four feet of snow as a natural disaster. It would be something that would wipe off the entire community.
It is important to understand that natural disasters are in a position to create a negative impact on the overall value of your property. Some of the most prominent examples for natural disasters include tornadoes, hurricanes, earthquakes, wildfires, mudslides, floods, and tsunamis. This is why you should have a strong understanding on the fact whether the land that you are going to buy is located in an area that is vulnerable to natural disasters or not.
One of the most devastating natural disasters to hit the country was the Hurricane Katrina, which happened back in the year 2005. It caused more than 2000 death. On top of that, this hurricane could cause lots of property damage, which is worth for over $81 billion. There was another tornado named F5, which created a major impact on Missouri back in the year 2011. It caused property damage equivalent to $2.8 billion as well. When you take a look at the property markets of the areas that were impacted by these natural disasters, you will be able to get a better understanding about the nature of impact that they could create. In fact, people lost a considerable amount of money with losing their property value immediately after the natural disasters. Therefore, you should learn your lessons from the past and refrain from buying land in an area that is highly vulnerable to natural disasters.
However, it is also important to keep in mind that some of the natural disasters would take place without a previous warning. Such natural disasters are in a position to create a major impact on the overall area. If the natural disaster is a catastrophic one, you will end up with losing the value of your property by a great extent.
Moreover, you should understand that weather patterns are usually changing along with time. At the time of purchasing your land, you would not have wanted to keep a flood insurance. Along with time, you will come across the need to use flood insurance. You should be mindful about these changes in weather patterns and try your best to reduce the damages that can take place in the future. If you sense that it is a good time to sell your property, you will need to go for it as well. it will even assist you to make sure that you sell your land in the right time, which can help you to overcome the negative effects that come along with reduction of its value in the future.
Natural disasters are in a position to create a massive impact on the existing property. In case if you have a proper insurance, you will be able to get a compensation for the damages. However, it wouldn’t keep you away from experiencing a loss in the overall property value. The property value would drop along with time, and you will not be able to get the best returns that come along with your investment.
- Short sales and foreclosures
Another important fact that would reduce the value of your property would be short sales or foreclosures. They are a massive threat to the property as well. That’s because they are in a position to create a major reduction in the overall property value.
For example, assume that two lands in your neighborhood were sold at lower prices. If you are planning to sell your land in the near future, you will be forced to sell it at a lower price as well. This is something inevitable. Likewise, foreclosures are in a position to create a significant reduction in the overall land value. This would make you lose your money along with time.
It is better if you can keep your eyes wide open about the foreclosures or short sales that are taking place in the neighborhood. In case if you can see a large number of foreclosures taking place, you should hold your nerve and refrain from selling your property. This will provide you the opportunity to refrain from losing money on the investment that you have made.
How to get the most out of your investment?
As you can see, purchasing land would not be the safest investment and there can be numerous other problems that can take place and make it lose its value. Therefore, you need to understand how to keep your land away from losing its value along with time.
The best method available for you to overcome the effects of land losing its value would be to understand the best location for purchasing your land. There are numerous factors that you should consider when purchasing a land to decide whether it would lose value or not. You must carefully focus on these factors and proceed with your investment on land. This will help you to refrain from the negative effects that would come on your way because of land losing its value.
It is better if you can also use the land for something productive after purchasing it. For example, you will be able to construct a house on the land that you bought. By doing this, you will be able to enhance the overall value of it. Moreover, you can reduce the chances of your land losing its value along with time as well.
Before you even utilize the land for an investment, you must carefully check and see whether it is the best option available for you to consider as of now or not. If that is not the best option, you should be going for another option. That’s because spending your money on land unnecessarily will not be able to help you with increasing its value. Instead, you will be losing the amount that you spend on the investment.
In the meantime, you must have a clear picture in mind about the useful life associated with your land as well. Land will usually have a useful life of around 15 hours. You will need to make sure that you are using the land for something productive during this time period. Then you can get the maximum return out of the investment.
Land is a tangible asset. However, it is relatively resistant to depreciation when compared to the other assets that are being used by people who live out there. While keeping this fact in mind, you should still understand that there is a possibility for the land to lose its value, and you should carefully plan how to minimize that from happening. This will deliver a variety of benefits to you in the long run.
If you are planning to build a house, you can also check and see whether it is worthy to buy a land with a house or buy only the bare land and proceed with constructing the house. You should carefully analyze all the pros and cons, which will help you to go ahead with the right investment decision. This can deliver a variety of benefits to you, and help you to overcome the negative effects that you may have to face in the future.