In Dripping Springs, the town where I live, in 1999 the average sold price per acre for land sales, in tracts larger than 10 acres, was $4050 per acre. In 2008 the average sold price per acre was over $15,000. That annual rate of return over the 10 years was in excess of 11% for land purchased in 1999.
At the end of 1999 the Dow Jones Industrial Average traded at 11,450. The Dow has recently been trading at 8800. GM traded at $72 per share on December 31st, 1999; now that stock is worth nothing. It's not hard to figure out what has turned out to be the better investment over the last 10 years.
Granted some real estate investment has not been profitable. People that bought properties near the end of the last real estate boom with the intention of quickly reselling the properties (flipping) were burned as property values in certain parts of the country plummeted in just a few months. But generally over the long haul real estate has consistently been a good investment.
Even when land could be purchased for $15 per acre in Dripping Springs buyers worried that they were paying too much. No matter how good of a deal, it is normal to have a nagging feeling that you might pay too much. Consider how well you would have done if you had purchased land along Onion Creek for $50 per acre 50 years ago. At the time it was a significant amount of money per acre but now that same land is worth hundreds of times the purchase price. The only way to realize those real estate gains is to be invested in property. Waiting for a deal that seems too good to be true may be safe but being a property owner is the only way to realize the value gains in land.
Real Estate is like any other investment in that it tends to be cyclical and rise and fall with the larger economy, but overall, land has consistently been a smart buy. Like stocks, the land investors that buy and hold are the ones that make money. People buying now, and holding for the future, may very well be the ones that come out of the soft economy looking like real estate geniuses when really all they were was smart enough to buy something.
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