We’ve talked about it before but the topic of land value versus improvement value is important enough to bring up again. It could be the difference in whether you find success or failure as a real estate investor.
Let’s talk about your income property. Doesn’t matter which one. Pick your favorite. First you’ve got the land. On that land presumably sits a structure of some sort, probably either a house or multi-unit complex like an apartment building (called the “improvement”). These are the two components that make up your investment, land value and improvement value.
Maybe you haven’t done it in the past but before you ever pull the trigger on another real estate deal again, you should consider whether the majority of the value of the property as a whole lies in the land or the improvement. If it happens to be in the land – watch out! Land value can be more speculative and rise and fall on the whims of the popularity or unpopularity of a local market.
But if the majority of the value of this property lies in the improvement, you may be looking at a sweet deal. At Empowered Investor, we believe ever increasing commodity prices are going to continue to drive improvement prices higher in the coming years. We’re talking about resources with a finite level of availability combined with a burgeoning percentage of the world population striving to consume them, driven by China and India’s growing middle class population.
The Hartman Risk Evaluator is perfect for helping you assess land versus improvement value. Call one of our investment counselors at 714-820-4200 to learn how to keep from ever adding a dud property to your investment portfolio.
