Investing in Land for the Long Run

The good earth has always been associated with wealth, and tales are legion of ancestral land left behind for generations. Of all assets humankind has known, land has proven the most enduring in value. Wars have been waged over land and its resources from time immemorial. Today, long term investors are buying land whose values multiply over 75 or 100 years, for their grandchildren or great grandchildren to reap those benefits.

Land held over long periods has always attracted investors with its perennial and romantic appeal. Many select land to securely and wisely leave their fortunes to their progeny. They seek out land having little or no economic value, such as uninhabited parts of Wyoming or rural Maine. That property might seem worthless today, and may remain so for a few more decades, but in the years to come, that land could see huge appreciation in their values.

Will Rogers (1879-1935), yesteryear’s movie actor, social commentator and America’s most famous cowboy, once said he invested in land (sic) “… for the sole reason that there was only so much of it and no more, and that they wasn’t making any more, …” quote courtesy of Will Rogers Memorial Museum, Claremore, Okla.

Rogers was right. In 1911, he bought a 20-acre ranch near Claremore, Oklahoma as his retirement home for $500 an acre. Today, ranch land in Claremore could fetch up to $25,000 per acre. Fifty years ago, North Dakota land could be had for $94 per acre on average. But today, a 40-acre rural parcel in the state’s scenic Badlands region has an asking price of $400,000, or $10,000 an acre. Oil was discovered in North Dakota in 1950, but until recently it was considered too expensive and difficult to extract. Those values ride a massive oil rush and a housing boom.

One oft-cited example of smart investing in land ahead of a boom is Walt Disney’s purchases in Florida for his theme park. The values of swampland in and around Orlando shot up after Disney Corp. announced its plans in 1965 to set up its Walt Disney World Resort there. But Walt Disney had bought most of the land needed for the resort (about 27,000 acres) through several dummy corporations months before the news of the proposed theme park leaked out. Land values shot up five-fold to $1,000 per acre soon after Disney’s announcement, and today, pasture land in Florida’s Osceola County some 100 miles away from the Disney Resort has an asking price of more than $5,000 an acre.

History is replete with examples of kings and governments using land strategically and as an economic resource. U.S. purchases of the Louisiana Territory from France in 1803 and of Alaska from Russia in 1867 were two of the most controversial, and Congress passed them with slender vote margins.

The federal government paid France three cents per acre for its 1803 purchase of 825,000 square miles with the Louisiana Purchase. In the case of Alaska, the U.S. got 586,400 square miles for $7.2 million, or two cents per acre. Today, among the least expensive non-irrigated Louisiana farmland lists for $2,000 per acre and Alaska ranch land for $760 per acre. Oil was discovered in Alaska in 1896, less than three decades after its purchase, vindicating the investment.

The most celebrated of all land investments is Peter Minuit’s 1626 purchase of the island of Manhattan from native Indians for $24 worth of beads, cloth and trinkets. Today, one listing for a sixteenth of an acre in Manhattan has a $400,000 price tag or $6.5 million per acre.

Investor demand for raw land is high, particularly in secondary and tertiary markets, says Jeffrey G. Otteau, president of Otteau Valuation Group, Inc. in East Brunswick, New Jersey. He sees two factors driving that: tax incentives for land held through trusts and investor disenchantment with the current state of the developed real estate markets.

Long term land investors gravitate towards lands that lie within a larger development corridor, where the construction of an interstate highway or interchange would sharply raise values, believes Otteau. The presence of natural resources, including water, natural gas and minerals also lures such investors. The U.S. faces a shortage of fresh water supply, and lands with access to rivers, streams or other large bodies of water that could be tapped are attractive, he adds. He also sees upsides in lands that could potentially be earmarked for preservation or conservation, making them candidates for acquisition. Large, contiguous land lots command higher prices rather than fragmented lots. As the saying goes in the Marine Corps, a 100-foot rope is better than two 50-foot lengths of rope.

Land price fluctuations over short periods do provoke some skepticism, and a healthy measure of that is justifiable. History has abundantly demonstrated that fears over the long term value of land are often not justified, even if they are understandable. World over, land has spoken of its owner’s wealth, and the wealthy are well invested in land. With shrewd foresight, the ability to pass that wealth down from generation to generation is an awesome empowerment.