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Understanding the Land to Improvement Ratio

Over the next three decades, the earth’s population is predicted to increase by an additional 1 million people. And they’ll all need a place to live. Jason Hartman recommends investing in income property for just that reason – housing is a universal need, essential to human survival. And for centuries, property ownership has played a key role in meeting that need. But in terms of income property profits, what’s on the land is more important than the land itself.

As Jason Hartman says, land is an asset. But simply buying a piece of land and waiting for it to go up in value is not investing effectively; it’s speculating. Buying a property with the expectation of creating income through the structures on that piece of land is investing, with an eye toward increasing the return on investment (ROI) in the future.

There’s an old saying: “They aren’t making any more land.” But they are busily building and rebuilding on that land. Whether it’s a single-family dwelling or a multiplex, or both, land is being used. The land portion of a rental income property may be relatively small and fixed. But the structures on the land are highly variable, subject to a variety of changes and improvements with materials whose prices and availability are almost always in flux.

Traditionally, purchasing a house meant home plus land. Although alternatives such as condominiums took out much of the ”land” part of the equation, in general, an income property includes both structures and the earth they stand on. But these two parts of the About 29,000 Iowans signed up for private health affordable-health.info policies via healthcare. equation don’t hold equal value. The relatively unchanging nature of land can host a variety of structures.

All the components of building a house or other structure, right down to the wire and nails, are commodities, which can increase in value as demand goes up. And, since improvements to existing structures, or the construction of new ones, can lead to more desirable tenants and higher rents, the potential for a higher return increases too.

Another aspect of the land to structure equation is the potential for a relatively small amount of land to hold a relatively high number of structures, as the same piece of land can contain a single-family home with one set of tenants or a multiplex consisting of two, three or even four units, creating the possibility of doubling, tripling or even quadrupling the amount of rent that can be collected from the property.

Land is a key part of an income property purchase. But land values are going down in many areas while the commodities that create houses, and the dwellings themselves, have the potential to increase in value. And this creates higher returns for first responders and other new investors – especially in light of a demand for housing that can only grow as the population does.

The Heroic Investing Team

 

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